After five years of lawsuits, five years of bad press, five years of exile in the United States and five years of shoe jokes, Imelda Marcos is fed up -- and she's kicking back.

Acquitted last July in a federal court in New York City on charges that she stole $222 million from her country, the widow of Philippine dictator Ferdinand Marcos is demanding the right to go home, bury her husband and seek vindication in Manila. Her lawyers have launched a bare-knuckle offensive to get her back in time for next year’s elections, and they're daring President Corazon Aquino to try to stop them.

For Aquino, the "housewife president" who rose to power in the popular revolution of 1986, the signs are a little ominous. She's being pressured to file criminal charges in Manila against Marcos by the end of the year, in a case that she's likely to lose. And with her longtime nemesis vindicated and on the prowl, Aquino could be forced, like it or not, to face Marcos down in a two-woman catfight for the presidency next year. In the Philippines, where politics is a blood sport, knives are already sharpening for the War of the Widows.

Marcos herself seems confident, even a little cocky, about heading into what may be the fight of her life. "We have been victims of this vindictiveness, this hate campaign," she says, waving a soft and perfectly manicured fist in the air. "But we are coming to be on the side of what is right!"

In an interview last month in her flower-filled suite at the Madison Hotel in Washington, Imelda Romualdez Marcos talked for several hours about her life, her travails and her coming vindication. She slips easily in and out of various roles as she talks: the bereaved widow, the persecuted victim, the woman of destiny, the poor little rich girl, the whiny parvenue and the philosopher queen. Dressed immaculately in black, with discreet touches of gold at her ears and a tiny Philippines flag pin glinting on her shoulder, she's filled out a little around the gills but is still, at 61, trim, elegant, a beauty.

She's also an indefatigable talker who sleeps only a few hours a night, and though she has a tendency to ramble -- semi-thoughts on love, air force bases and motherhood tumble out in a vague muddle -- she doesn't cry in public anymore, as she did during the tense weeks of her trial last summer. She even cracks jokes, sort of: "Oh yes,” she tells the photographer as he positions her for a portrait, "my husband used to say that cameramen were the real dictators!" But when the talk turns to the lawsuits against her, to Aquino and to the future of her country, the deep brown eyes turn steely and sharp, and the voice takes on a sudden edge.

Admire or despise her, Imelda Marcos has toughed out five years of public scorn. She's a survivor. For two decades she and her husband wielded absolute power over the Philippines, plunging the country crazily into debt to fund an orgy of spending that dazzled, and later disgusted, the entire world.


Ferdinanad and Imelda, in  better daysThey were a brilliant couple: as Ferdinand practiced the politics of intrigue and patronage, Imelda shopped, and shopped, and shopped, and shopped.

But everything began to collapse in 1983, when popular opposition leader Benigno Aquino was shot down as he returned from exile. Aquino's murder set off a mounting wave of anti-Marcos sentiment that exploded in February 1986, when hundreds of thousands of people massed in the streets. Marcos's own generals turned against him, putting Aquino's widow, Corazon, into Malacanang Palace. With the crowd hard on their heels, the Marcoses fled in panic to Hawaii.

For Ferdinand and Imelda, it was a bitter comeuppance. One of Aquino's first acts was to open the presidential palace to the public, displaying Imelda's fabled collection of shoes (more than 1,000 pairs) and bras (300 of them, all black, all identical). Aquino mounted a string of lawsuits against the Marcoses in New York, California, Hawaii, Canada, Britain, Hong Kong and Switzerland, and set up a special task force to track down the $10 billion allegedly stolen by Marcos and his cronies during their years in power.

But after Ferdinand Marcos died in Hawaii in September 1989, the search for the missing money began to falter, and the centerpiece of Aquino's legal attack on Imelda Marcos -- the charges of fraud and racketeering brought in New York -- backfired wildly, leaving a triumphant Marcos cleared of all charges.

Suddenly, the tide seemed to be turning in her favor. Leaving the courtroom after the verdict, one juror accused the government of "harassing this poor woman:' and the judge in the case said in disgust that he didn't understand why it had even been brought. From the venal, overdressed parasite she had been portrayed as, Marcos found herself transformed overnight into something more to her liking: an innocent victim of persecution.

The acquittal reinforced her determination to get back to Manila. But that won't be a cakewalk for Marcos. There's the money problem, for one thing: Identified Marcos assets around the world are frozen under a civil suit Aquino is pressing in Los Angeles, and Marcos has to account to the government anytime she spends more than $10,000. Moreover, she can't leave the United States because of a hold-departure order issued by the Justice Department -- in fact, she can't even leave New York without giving 48 hours' notice.


Cory AquinoBut the biggest hurdle is getting her government to grant her a passport -- and that Aquino has adamantly refused to do, on the grounds that Marcos poses a threat to national security.

Since the acquittal, however, pressure has been mounting for Aquino to back down: Few of her advisers believe that Marcos could mount a successful coup, and the polls say that most Filipinos think it only decent to let her come home and bury her husband.

The Philippine Senate, the House of Representatives and the chief of staff all agree that it's perfectly safe to let Marcos come home. Even Gen. Rodolfo Biazon, the head of the armed forces, agrees: "If the army is asked whether Imelda will pose a direct security threat to our nation,” he said in a radio interview, "my answer is no."

But the kicker came in December, when the Swiss Supreme Court ruled it would not turn over $350 million in sequestered Marcos accounts unless Aquino filed criminal charges in the Philippines by the end of 1991 -- and let Marcos return to defend herself.

That forced Aquino's hand, and in late March she finally caved in. "Imelda Marcos will be issued a passport when we have finalized the criminal charges against her," she conceded -- while acknowledging that the government still wasn't quite sure what to charge her with, or when.

With the scent of blood in her nostrils, Marcos immediately moved to throw Aquino even further off balance. She filed a suit in Manila against Foreign Secretary Raul Manglapus and two other officials in early April, asking for $3.57 million in damages for the "mental torture" she suffered in exile, and a few days later petitioned a Manila court to order Aquino to return her passport to her. "There is absolutely no legal or justifiable reason for preventing her return at any time," argued her lawyers, "even before the institution of any criminal case.” She's not stopping there: The lawyers also plan to plead her case before Amnesty International and the United Nations. In Manila, meanwhile, a coalition of pro-Marcos groups has been circulating a petition to bring her home: They claim to have garnered 2 million signatures so far.

Cory Aquino might be excused for being a bit skittish; only a few months ago she warned publicly that letting Marcos back in would allow her to "mobilize the underground network of the Marcos dictatorship, which is designed to overthrow this government and endanger our democratic aims and economic momentum." That's strong language. But it's widely suspected that Marcos money was behind at least a few of the seven coup attempts that Aquino has weathered in the past five years -- including the most serious one in December 1989, when rebels held Manila's central Makati district for six days.

Since then, the military has rounded up many of its top renegade plotters: Eight have been captured in the past few months alone (the latest, Capt. Edgardo Divina, was picked up in April as he was distracted by a local beauty contest). But rogue ex-military figures with close ties to the Marcos regime still roam the countryside, occasionally showing up at military bases to stir up coup fever. Their numbers are small, their funds are limited, and their influence is thin. But there are some who would kill to bring back a Marcos regime, and that's what keeps Aquino up nights.


Fabian VerTake, for example, former Gen. Jose Maria "Jimmy" Zumel, the head of Imelda's bodyguard detail for several years. Zumel’s loyalty to his boss was rewarded with a promotion to air force general and superintendent of the military academy. He's now hiding somewhere in the Philippines, diplomatic sources confirm.

Then there's Gen. Fabian Ver, Ferdinand Marcos's former military chief of staff, right-hand man and onetime suspect in Benigno Aquino's murder. No one knows where Ver is now, nor ex-Col. Gregorio "Gringo" Honasan, the leader of the rebellious Reform the Armed. Forces Movement and one of the suspected brains behind the December 1989 coup attempt.

If Imelda Marcos does return, though, it's unlikely she'd bother fomenting a coup with a scurrilous pack like Zumel, Honasan and Ver. She's developed a certain subtlety during her years in exile (the result, perhaps, of discovering she had become one of the world's most reviled public figures), and her plan now seems to be to first humiliate Aquino, then ease her way back into public life. She doesn't need to win the presidency to do that, but she does have to win her case in a Manila court.

"More than life," she says intently, "I value vindication." Can she get it? Tough to predict, but Justice Secretary Franklin Drilon admitted in April that the government has something less than an airtight case. In five years not a single criminal charge has been lodged against Imelda Marcos in Manila, and the task force Aquino set up to investigate her, the Presidential Commission on Good Government, has been sputtering along lamely for years. Its head, David Castro (himself the object of a Marcos lawsuit), has promised that charges will be finalized in June, but politics will determine the timetable. As one experienced diplomat in Manila says, "Cory Aquino would rather have Marcos back later than sooner."

If that reflects a certain lack of confidence, it should. The Filipino system of justice is modeled on the American one, and there's no reason to think that a trial in Manila would have any more success than the fiasco in New York, when the government produced 350,000 documents, 95 witnesses and still couldn't make a convincing case.

"We couldn't convict her just because she had money," says Alan Belofsky, a New York mailman who served as a juror in that case. "I mean, a lot of the evidence was about her husband, not her. And a lot of the information made no sense. I don't know if any other jury will understand it any better than we did." An acquittal seems likely -- an acquittal that would gall Aquino and turn Marcos's return into nothing less than a triumph.

It would also mean that Marcos could keep her fortune intact. The presidential commission has recovered only about $455 million of what it estimates to be $10 billion in Marcos cash, real estate and art, and morale in the group is dropping fast. "It's very difficult to put together a paper trail,” says Maria Teresa Roxas, head of the PCGG's New York office. "A lot of the evidence that we've accumulated is from documents that were left behind. Because (the Marcoses) made a mistake, we were able to put together some sort of paper trail. But they haven't made many mistakes."

Still reeling from its loss in New York, the PCGG got another blow in December with the Swiss Supreme Court ruling. Besides calling for Aquino to file charges in Manila, the Swiss added insult to injury, reserving the right to review the trial. If they think Marcos was unfairly convicted, they say they'll ignore the court's decision.

And as if things weren't bad enough, commission head David Castro blundered again last month when he offered to drop the civil racketeering and graft charges in Los Angeles if Marcos would turn over some $200 million in her accounts in Hong Kong. No sooner was the offer made public than Philippine Solicitor General Francisco Chavez denounced it as "a betrayal of the moral crusade which is expected of this government." Marcos jerked the hapless Castro around for a while before walking away from the deal -- laughing, as they say, all the way to the bank.


The Philippines during the "People Power" revolutionMoreover, disturbing tales are filtering out of the rocky island of Leyte in the central Philippines, where a group of bounty hunters broke into the Marcos family mausoleum in search of gold -- and did it under Castro's orders. Work was cut off in mid-April after the diggers were fired on by unidentified assailants, but not before the bones of Marcos's parents had been dug up, pawed through and left on the ground.

Castro has gone on record as saying he had been told about the vaults by a witness who had seen them being built, and while he had no indication that there was any gold in them, he thought he might as well investigate. Under the deal, the government would get 60 percent of anything recovered; the diggers could keep the rest.

In her suite in Washington, Marcos turns bitter and a little distraught as she looks through photographs of the desecration, just mailed to her from Leyte. "All I can say is that [Castro] is very tough to talk to,” she says sharply. "He has direct conversation with the Blessed Mother! He had a revelation from the Blessed Mother that there was gold in my family tombs, in the graves of my father and my mother and my family, so they trampled upon the sacred graves of the dead. This is the thing -- he's hearing instructions, and this is the head of the PCGG." She leafs quietly through a few more of the pictures. "It's a very unusual situation."

If she can face Aquino down in the courtroom, Marcos's next job will be to position herself as either candidate or eminence grise to a less controversial figure. She won't reveal her plans, but both supporters and detractors are convinced she has her eye on the top prize. "There's no secret about her ambitions,” snorts the PCGG's Roxas. "She wants to be president!”

Imelda herself is coy. "My hopes," she demurs, "are not for the presidency." She pauses, letting her eyes moisten. "But as a mother, as a woman, when your children -- your people -- need help, need love, need food, need employment, it doesn't matter if you are not a doctor. As a mother, you will find a doctor. Even if you are not a farmer, you will find a farmer to produce the food for your children. So my role right now is beyond ambition and beyond the presidency. I just want to go home, to mother a people who need help."

Marcos may have trouble selling that pitch to her putative children. She's been known as many things: the Rose of Tacloban (from her beauty queen days), the Muse of Manila (for singing "Feelings" at cocktail parties) and the Philippine Evita (or ‘Superma'm,’ as her staff is said to have called her). She's been a member of Congress, governor of Manila and, more recently, accused thief. But now: Mother Imelda?


The assassination of Bengino Aquino  led to the Marcos' downfallStill, she might just bring it off. The Marcos name has more clout than any other in the Philippines, though it's hard to judge just how much people are willing to forgive and forget.

"She certainly has a large number of friends and supporters,” says a Western diplomat in Manila. "They were in charge for a long, long time. Her return would have a large impact and would raise a lot of emotion. But whether that would translate into political influence beyond what she has now with the network of friends, relatives and money that supports her is hard to say." Another experienced observer is more blunt: "There's a certain amount of self-delusion in her own mind about how popular she is.”

Deluded or not, Imelda herself is unfettered by doubt. "Oh, definitely," she says, waving a confident hand in the air, when asked if her image has changed. "The truth is starting to prevail; all the propaganda is now being shown as false." Maybe, although a survey conducted in Manila after her trial found that 69 percent of the population still thought the graft and corruption charges against her were based in fact. But there's sympathy, too: Fully 64 percent say she ought to be allowed to return home.

"She's pretty low as far as voter preference goes for president,” says Mahar Mangahas, head of the polling group Social Weather Stations in Manila. "There are at least 10 people in front of her. People may feel that she should be shown more compassion perhaps, but I don't think that will change voter preference."

Of course, when you're as rich as Imelda Marcos, voter preference is whatever you want it to be. It's reliably estimated to cost about $40 million to run a campaign in the Philippines, and with high levels of unemployment, the vote buying in the next election could reach epidemic proportions. "The rent-a-crowd phenomenon used week after week by the Marcoses in the late 1970s to generate support is still a possibility," notes James Clad, a Philippines expert at the Carnegie Endowment for International Peace in Washington.

That's one reason why at least five of the leading candidates (according to one Marcos lawyer) are actively courting her support and endorsement. She's coy about whom she likes: "I've said time and time again that I would help the candidate wanted by the people." Pressed on whether any of the candidates are particularly outstanding, she smiles sweetly and says, "I will have to check."

Marcos, of course, is hoping that the people will want her. To that end, she's been busily cultivating the image of a born-again democrat: "Vox populi, vox dei" has become one of her favorite expressions. Floating happily above the fray, she's careful to avoid seeming too pushy, or too interested. But she's quick to remind anyone who asks that she is, in fact, available for the job. "If the people speak, the leader follows," she says. "And in this case, if the people speak, Imelda follows. Only then must one consider a draft for the presidency."

The Philippines that Marcos wants to lead is, in plain words, a mess. Between fighting off the periodic coup attempts, Aquino has had to contend with a 22-year-old communist rebellion, a $28 billion foreign debt, double-digit inflation and widespread unemployment. Economic growth is expected to slow to a deathly 2 percent this year. Aquino's response? She proclaimed the week of April 14 as "Positive Thinking Week,” saying that "positive thinking brings one closer to the ideals of truth, beauty and happiness.”

In all fairness, Cory Aquino has accomplished some remarkable things, not least being the restoration of democracy. But her critics charge that corruption is still rampant, costing the country more than $4.5 billion a year, and that bureaucratic inefficiencies and government mismanagement are hampering growth. The transportation system doesn't work, electricity frequently goes out, the phone system is unreliable, and the garbage often goes uncollected. As basic services collapse, disillusion with the "people power" movement is growing, and as Aquino herself once observed, "liberty is a poor substitute for food."

Marcos refuses to be drawn out on the subject of Aquino's leadership. "A strong leadership based on vindictiveness or negativism will bring further negativism,” she says, with all the neutrality she can muster. But it's clear that she would welcome a match; and while Aquino told supporters recently that "not even an Imelda could make me run again," an actual Marcos candidacy would probably change her mind.

Aquino could hardly be blamed for running from a showdown. The strong bosses and big money families that have traditionally run Filipino politics don't much like her, and the fight could get bruising. As one Filipino paper noted recently, "Elections in the Philippines are the ultimate exercise in vote-buying, tampering, cheating, terrorism and brutality -- and the time to even the score."

That hasn't discouraged a gaggle of would-be candidates (dubbed "the presidentiables" by the press) from preening for the race. If Aquino does drop out, she's expected to give her blessing to Speaker of the House Ramon V. "Monching" Mitra Jr. But Defense Secretary Fidel "Eddie" Ramos, the general who quashed the coup attempts against Aquino, also wants her endorsement and could run as a candidate of the newly formed United People's Power Movement if he doesn't get it.

In the opposition Nacionalista Party, the fight for the nomination is on between Juan "Johnny" Ponce Enrile and Salvador "Doy" Laurel (both longtime associates of Marcos's), though polls suggest neither has much widespread support.

Out on the fringes are a few others: Senate President Jovito "Jovy" Salonga; Executive Secretary Oscar Orbos; Sen. Joseph "Erap" Estrada; former Cabinet member Miriam Defensor Santiago -- and maybe even Ferdinand "Bongbong" Marcos Jr.


Eduardo "Dandang" CojuangoBut the most intriguing, the most powerful and certainly the richest is Eduardo "Danding" Cojuangco, a multimillionaire who rose to prominence through his long association with Ferdinand Marcos. Cojuangco (who, as it happens, is Cory Aquino's first cousin) made millions running a string of businesses during the Marcos regime and was so close to the ruling family that he left with them in 1986 -- only to return under still-unexplained circumstances just before the December 1989 coup attempt.

Cojuangco has been pressing the flesh and passing out favors in recent months, testing the waters for a campaign. He's launched a new group called the Filipino Party and armed it with a huge war chest. Known as a sophisticated and capable businessman, Cojuangco is said to understand the politics of patronage better than anyone. But many of his assets have been seized by the Aquino government because of his association with Marcos, and now he wants them back. "No one is really sure if Cojuangco wants to run,” says another Western diplomat, "or if he's getting ready to support someone who would free him from this web of sequestrations that hamper his business empire."

When the campaign officially opens next year, the field will have boiled down to just a few contenders. Until Marcos makes up her mind whether to be among them, going head-to-head with Aquino, or supporting Cojuangco or another ally from behind the scenes, she's happy to file lawsuits against Aquino's government and play the innocent. "I would rather someone else became president," she says. "I would have more freedom and more credibility. But destiny is something you cannot argue with.”

It's just after dusk on a Thursday evening in Saigon, and the rooftop terrace of the Rex Hotel -- a favorite watering hole for foreign businessmen -- is starting to fill up. A warm breeze ruffles the animal topiary scattered around the edge of the roof, carrying snatches of conversation from table to table. "They want two and a half million, can you believe it? Upfront, yes! In dollars!"

Consumerism rising in Vietnam                                        Photos by B. CabeThe Vietnamese waiters bustle back and forth with glasses of Heineken beer, Suntory whiskey and Johnny Walker Black Label, skirting the two 10-foot-high plaster elephants, the hanging parrot cages and the statues of naked maidens.  "Sure, sure, but you've got to figure in packaging costs." The accents are Australian, French, German, Chinese. A moth-eaten stuffed bear, rearing on its hind legs, bares its fangs over by the bar as a cluster of Japanese businessmen, chattering happily, find a table and sit down.

Michael Gebbie, the director of a Hong Kong-based investment company called Pacific Transactions, takes a long swig of his Tiger beer and looks around the terrace. "It's become a cliché, but it's true: Vietnam is the last frontier," he says. "And it's filling up with cowboys."

After 16 years of economic stagnation, archaic politics and global isolation, Vietnam is taking a headfirst leap into capitalism, determined to claw its way into the global economy. With a per capita income of only $200 a year, Vietnam is still one of the poorest countries in the world. But trade with the West is surging, and with its mostly-unplundered natural resources, cheap labor force, stable and pragmatic government, fantastic beaches, about 68.5 million consumers, prime geographic location and unexplored opportunities, the country is being overrun by a stampede of foreign investors, advisers, traders, oil explorers, real estate developers and entrepreneurial adventurers of every stripe who think they've discovered the world's next moneymaking hot spot.

Forget about Eastern Europe, they say; strictly a basket case, and going to stay that way. The fastest growing part of the world is Asia -- and in Asia, the place to be is Vietnam. It's starting from point zero, which means it could grow much faster than overheated economies like Thailand's, and while big profits may still be years away, long-term investors will make out handsomely. With the big capital deposits in Hong Kong, Tokyo and Taipei looking for somewhere to flow, Vietnam is dangling as many lures as it can. And people are getting hooked.

"Given where it is, what it's doing and what it has," says Gebbie, "this place can't lose."

There's just one hitch: The United States clamped an almost total embargo on trade and investment in Vietnam in 1975, and it has pressured other countries to abide by the embargo since 1978, when Vietnam invaded Cambodia to kick out the Khmer Rouge. The embargo has squelched large-scale investment from countries that don't want to alienate the United States and has kept Vietnam cut off from development aid from the International Monetary Fund, the World Bank and the Asian Development Bank.

Washington drew up a road map for normalizing relations in April, calling for Hanoi to bring its client government in Cambodia to the negotiating table and to provide more information on American soldiers still unaccounted for, and there are indications that the embargo may be lifted soon.

But even if it were lifted tomorrow, say some investors in Vietnam, an opportunity has already been squandered. With Japanese, Australian, Hong Kong, Taiwanese and European investors poised over the juiciest investments, Washington may have dealt U.S. business out of the hottest new game in town.

To walk through the streets of Saigon (only party hacks call it Ho Chi Minh City anymore) is to walk through a caldron of change. By 8 in the morning, the old colonial tree-lined avenues, virtually empty just a few years ago, are clogged with a raucous, nonstop sea of traffic: Young men on Japanese motorcycles bluster their way through intersections, oblivious to stoplights, while groups of gray-suited Japanese businessmen dodge minivans packed with German tourists.

Decades-old Peugeots and Chevys, kept up with meticulous care, vie for road space with Russian Volgas, while peddlers with carts of bananas and peeled coconuts push past the ubiquitous pedicabs called "cyclos." Bicycles piled high with sacks of rice and bundles of fabric jostle along unsteadily. From time to time, like visitors from a more innocent era, elegant young women wearing the traditional white ao dai delicately thread their way through the traffic, wearing elbow-length gloves to protect their skin from the harsh sun.

The sidewalks, meanwhile, have become teeming mazes of hawkers, who crouch over their trays of herbal medicines, Russian watches, acupuncture pins, seashells, cartons of Marlboros and cans of Coke smuggled in from Thailand, condoms, week-old copies of Paris-Match, East German surgical supplies, Yamaha synthesizers, handmade lutes, even T-shirts that read, "Born and Bred in the USA."

In the expensive antique shops on the street now called Dong Khoi (the elegant old Rue Catinat), there are ivory cigarette holders, Chinese military binoculars and Zippo lighters inscribed by American GIs. Record stores stock CDs of Bon Jovi, Duran Duran and Rod Stewart, and bookstores sell Vietnamese translations of everything from Neil Sheehan's A Bright Shining Lie to a half dozen Danielle Steel romance novels. (You can even get Alexandra Ripley's sequel to Gone with the Wind -- just ask for Cuon Theo Chieugio.)


In Saigon, a building boomThe T-shirt sellers in front of the presidential palace brandish a familiar face: "Uncle Ho!" they shout to foreigners. "Very cheap! " High overhead, the billboards that sprout from the top of almost every downtown building scream Minolta, Kenwood, Hitachi and a slew of other foreign names. In the doorways below, women squat over small fires in oilcans to stir pots of chicken and vegetables to sell, while the city's lepers, their tin cups clenched against their chests, beg for coins.

The surge of foreign investors has spawned whole new industries, as well. There are more than a dozen karaoke bars in downtown Saigon, for example, to cater to the resident Japanese contingent, while European expatriates mingle with the hipper set of Vietnamese in the always crowded Apocalypse Now bar (just around the corner from the Hambugo Caliphonia restaurant). The infamous Maxim's nightclub on Dong Khoi has reopened as a restaurant, but the strip shows of the 1960s have been replaced by a bored pianist playing Beatles tunes, accompanied by an all-girl string section.

Even the skyline has changed; at the edge of Hero's Square along the riverfront sits the Australian-built, Japanese-owned Floating Hotel (rooms start at $175 a night), where a Filipino band in the lobby bar sings note-perfect renditions of Western songs like the Joan Jett hit "I Hate Myself for Loving You." The famous open-air terrace cafe of the Hotel Continental, where Somerset Maugham and Graham Greene sat and wrote their novels, has just been transformed into a glassed-in pizzeria called Guido's. "Come to Ho Chi Minh City," the official SaigonTourist guidebook cheerfully urges, "a town endeared to the search of its identity!"

For Saigon -- in fact, for all of Vietnam -- that search is moving into high gear. Since the late 1970s, when it became painfully clear that Soviet-style, centrally planned economic policies were creating a quagmire, the country has been revamping its political, economic and foreign policies at a pace that in some ways has outstripped the changes in Eastern Europe. The "American war," as it's called here, had left the country economically ravaged, and the aid and subsidies that Moscow provided were nothing more than Band-Aids.

Putting together a unified, national economy proved daunting. Not only were Hanoi and the newly renamed Ho Chi Minh City at opposite ends of the country, they were (and still are) culturally divided as well. "The people down here never really adopted socialism," says a Singaporean who has lived in Saigon for several years. "They just remember it as a time when the country went dead."

By 1979, with rigor mortis setting in, Hanoi was forced to act. It abandoned collectivized agriculture, allowing farmers to lease land from the state and sell produce at market prices. The results were remarkable: The country went, almost overnight, from being a net importer of rice to a net exporter. Encouraged, Hanoi began to experiment with similar incentives in industry (allowing factory managers to pay piece-rate wages, for example), and in 1986 it formally legalized private economic activity.

It was the beginning of doi moi, economic reform, and the policy picked up speed throughout the late 1980s as Hanoi took more and more steps toward a market economy. Some price controls were lifted and the banking system was overhauled. By 1989, Hanoi dropped overall central planning and began cutting away, or abolishing entirely, subsidies to state industries. A slew of market-freeing measures followed: Citizens could buy and sell gold, companies were allowed to export and keep the hard currency earnings, managers were given free rein in their factories. Doi moi was emerging, the World Bank noted admiringly, as "a bold economic reform that puts Vietnam in the forefront of socialist economies attempting to rejuvenate their economies."

The pace of the reform was, inevitably, sped up by the collapse of socialism in the Soviet Union and Eastern Europe. Until 1989, Hanoi had been able to prop up the economy with huge shipments of gasoline, fertilizer, steel, cotton and other products from the Soviet Union, provided at "friendship" prices, and aid of some $1.1 billion a year. But by 1991 Moscow's pockets were so empty that the shipments dropped by half -- and had to be paid for in hard currency at market prices. Moreover, Vietnamese workers in Eastern Europe, who had been sending home as much as $150 million a year, were being repatriated. To cap things off, Moscow also began demanding that Hanoi repay its 9 million-ruble debt -- in hard currency, naturally.

The rejuvenation hasn't gone completely smoothly. "There isn't any model for us to follow -- no communist country has shifted to a market economy," says Vu Huy Hoang, a deputy director of the State Committee for Cooperation and Investment. "But we're finding our way, slowly." Signs of economic vitality and stability are growing. The government's $200 estimate of per capita income is probably an understatement, since so much activity takes place outside the official economy. Inflation is running at 70 percent a year, but that is a vast improvement over the triple-digit inflation that rampaged through most of the 1980s, and the government is determined to bring it down to 30 percent this year


Matthews: Everyone wants a market economyIn discussions with top government officials, bankers and businessmen, one theme comes through: an absolute commitment to seeing a market economy evolve, and quickly.

"I don't think there's any doubt in anyone's mind that the market economy is the way to go," says Eugene Matthews, a young American investment adviser who lives in Hanoi on a student visa to avoid the restrictions of the embargo. "And not just among the leaders. You talk to the people in the markets, who couldn't sell their produce a few years ago, and they're very enthusiastic about the new system. They like the benefits, and they like that they're allowed to operate the way they want."

Aside from promoting private industry inside Vietnam, Hanoi is also making an all-out effort to attract foreign investors -- and the technology, capital and expertise that come with them. In 1986, it baited the hook with one of the most liberal foreign investment codes in the developing world: Foreigners are allowed to own 100 percent of any companies they set up (although they're encouraged to form joint ventures with state-owned companies) and can invest in any enterprise except those related to national security or deemed "socially incorrect," like gambling.

Investors are free to repatriate earnings and capital, with a moderate withholding tax of 10 percent. And while corporate income is taxed at a rate of 20 to 25 percent, the government will bargain. In fact, say investors, everything is negotiable, from taxes to land leases (normally 20 years) to wages (officially, foreign companies are required to pay workers no less than $50 a month). Hanoi is also setting up export processing zones where investors will pay less than 15 percent in taxes, be free from all import and export levies, and get breaks on customs, visa and bank formalities.

"We're always talking with foreign businessmen to see what they want," says Hoang of the cooperation and investment committee. "We're very much open to suggestions."

Despite the incentives, investors are wary. As of October, about 330 investment licenses had been granted, mostly for industrial production, oil and gas, agriculture and tourism, representing some $2.47 billion in foreign investment. "According to my estimates, in order to be able to take off in the future, investment should be at least $2.5 to $3 billion a year," says Nguyen Xuan Oanh, a Harvard-trained economist who advises the government on economic policy. "Now, $2.4 billion in two years is too small; we've got to do better than that."

Investing in Vietnam is not for the fainthearted or for anyone seeking quick profits. The investment code that looks so inviting on paper is not matched by ease in the day-to-day vagaries of doing business. Just signing a contract, for instance, can involve negotiating a maze of interlocking bureaucracies and conflicting regulations. Modern office space is almost unobtainable, and it costs an estimated $100,000 just to get a lease, renovate the building and make it operational.

Power supplies are erratic; some sections of Saigon and Hanoi have electricity only four or five days a week, and telex and fax services are unreliable and expensive. Visa and customs formalities can be agonizingly slow, and transportation is atrocious: Roads and railroads are a wreck; Vietnam Airline's fleet of narrow-body Tupolev-134s has a total capacity of only 1,400 passengers. Water supplies are unsanitary, malaria is pandemic, communications are comically unpredictable (two people trying to call an office at the same time may find themselves connected to each other, for example), and equipment in factories, especially in the North, is often decades out of date and in poor condition.

Moreover, the rules of the game still haven't been clearly established. Theoretically, an investor can make contact with a company, agree to a joint venture and get a license from the State Committee for Cooperation and Investment. But in practice, things are more complicated. Investors can get locked into doing business with a web of companies under the control of a single government ministry, limiting their freedom and subjecting them to the whims of lower-level bureaucrats. And while bribery is rare, gouging is said to be widespread.

"Corruption here is nothing like it is in some other Asian countries," says a Western businessman who has been in Saigon for several years. "We've never been confronted in official business with any suggestions that we pay people off. But you are sometimes asked, officially, to pay for services which are not reasonable. It's not corruption, but it's not very ethical, either."

And the country's legal framework is still tenuous. While the foreign investment law is quite liberal, investors can find themselves strung up on a web of regulations implemented by local authorities. "A lot of the financial problems people get into stem from the legal problems," says one European adviser in Hanoi. "Contracts can suddenly change, unilaterally. And although Vietnam has agreed to go to outside arbitration panels to settle disputes, the final guarantor of the agreements is Hanoi. So...."

Vietnam's isolation has left its mark as well. "You're dealing with highly intelligent people who are well-educated and eager to learn," says one European businessman. "What they lack is the understanding of Western business practices and concepts. And that leads to indecisiveness; they'd rather not make a decision than make a bad one. They're lovely people, but they don't understand the idea of time being money."

Good management is missing, says OanhSome Vietnamese agree. "The success of doi moi has been uneven, primarily because of the lack of competent managers," says government adviser Oanh. "Bankers, managers, the people who can fill the key positions - these are very much missing at the moment."

In fact, the old military cadres who made their mark in wartime against the Americans, the Khmer Rouge or the Chinese were often rewarded with directorships of state companies. "You'll sit down at a meeting with the managers of a Vietnamese company, and then the director will make his appearance," says Gebbie of Pacific Transactions. "And everybody will roll their eyes and look down at the table while he makes a few comments. After a minute or two of this, he's conveniently called away to take a telephone call. And then you can start discussing the project."

In spite of the hazards and hassles, though, money is still coming in. Taiwan has been the most enthusiastic investor. It has the largest single joint venture in the country -- worth some $88 million -- and a total of 39 projects worth nearly $538 million are under way. Some $350 million has come in from Hong Kong investors, $280 million from Australians and $273 million from the French, who have been putting money into textile mills, oil exploration, hotels, auto assembly plants, seafood processing and anything else that seems promising. Investment companies like Pacific Transactions and Inchcape Vietnam are setting up shop, and international banks are opening branches. Investors have come from Britain, Denmark, Hungary, Argentina -- 31 countries in all.

But the country that is having the most impact is Japan. Tokyo has been paying lip service to the American embargo and has not provided any official aid, but neither has it forbidden its businessmen from trading or investing with the Vietnamese. As a result, tens of thousands of Japanese have been scouting the territory for the past several years, looking for investment opportunities, signing agreements for joint ventures and waiting until the embargo is lifted. Their ranks are growing: The number of entry visas granted to Japanese businessmen doubled last year, to about 15,000. With $103 million committed so far, Japan is only the ninth-largest investor, but trade between the two countries shot up to an estimated $1 billion last year, making Tokyo Vietnam's largest trading partner. Official development assistance from Japan's government likely would unleash a flood of investment.

In fact, the Japanese presence is so strong that it has made other investors nervous. There are huge billboards advertising Japanese electronics and automobiles all over Saigon and Hanoi, and companies like Hitachi (which opened a showroom in Saigon in November) are praising Vietnam as "the market of the future."

"The day after the embargo is lifted, you will probably find that the Japanese have sewn up the country," says a European businessman in Saigon. "They've been preparing for that and spoiling the prospects for others to do business in the meantime. You just can't help but feel that the Japanese are not able to put their money where their mouth is, that they're just using delaying tactics until the embargo is lifted, hoping that opportunities will become available. So it's detrimental to the country's growth."


Japanese businessmen in Saigon; other investors are waryIn fact, Japan-bashing is almost a full-time sport among non-Japanese investors. They complain that the Japanese have been pushing up rents to ludicrous levels -- leasing unrenovated villas in Hanoi for as much as $30,000 a month, for example -- and accuse them of taking advantage of the lack of business sophistication among the Vietnamese.

"This town is full of big-money cowboys;' says investment adviser Gebbie. "They'll draw up a $25 million project for a new building, get a license from the government to use the land and then disappear. They can't pull the financing together, but they've tied up the property. So when somebody else comes along with a serious proposal -- say, renovating a building already on the site for $2 or $3 million -- the Vietnamese will turn it down. Why should we do that, they ask, when these other guys want to invest $25 million? So nothing gets built. The cowboys scare the serious money away."

Oanh agrees. "It's quite simple to check on peoples' credit ratings," he says. "But most of the leaders are quite green at the game. They don't know how to do it, so they sign everything and anything, and it turns out to be a raw deal."

On broad, leafy Dien Bien Phu Avenue in Hanoi, just around the corner from the gray marble mausoleum that holds Ho Chi Minh's body, sits an elegant old villa housing Vietnam's Ministry of Foreign Affairs. In a second-floor reception room looking out over what must be one of the only statues of Lenin left standing in the world, Deputy Minister for Foreign Affairs Le Mai is eager to discuss the American embargo. As head of the delegation that met in November with Richard Solomon, U.S. secretary of state for East Asian and Pacific affairs, he seems optimistic that relations will be normalized soon.

"I told Mr. Solomon, you have the American road map, and I have the Vietnamese shortcut," he says, laughing. "So let's put them both on the table and talk."

Normalizing relations with Washington has been at the center of Hanoi's foreign policymaking for more than a year. While the Vietnam War still seems close to many Americans, the Vietnamese have been through two border conflicts since then, first with the Khmer Rouge in Cambodia, then with China. Americans are greeted almost everywhere in Vietnam with genuine warmth and interest. Until the embargo is lifted, economic recovery can never really take off.

"It was our initiative to normalize relations with the United States, you know," says Le Mai. There are two official interpreters in the room, but as he speaks perfect English, they wait quietly, listening. "We know we are a small and humble country, so we should make the first step."

Signs of a shift in U.S. policy are multiplying. Washington lifted its embargo against Cambodia on Jan. 4, and during a January visit to Hanoi Rep. Stephen Solarz, the New York Democrat who heads the Foreign Affairs Subcommittee on Asian and Pacific Affairs, said the embargo against Vietnam might be lifted this summer or fall. While U.S. airlines are still forbidden to fly to Vietnam, Washington lifted the ban on U.S.-organized tours in mid-December.

There are also signs that America's allies are growing increasingly impatient and that international support for the embargo is crumbling. Japan's influential Ministry of International Trade and Industry has indicated it is close to supporting Japanese investment in Vietnam, and grants and soft loans are flowing in from a number of countries, including Australia, Italy and France.

"The embargo is like gunship diplomacy," says Le Mai. "It's out-of-date and doesn't fit the international situation today, which is the world of interdependence. That's why all people in Southeast Asia would like to see U.S.-Vietnamese relations normalized -- it would be beneficial to all."

Some observers, like George Carver of the Center for Strategic and International Studies in Washington, are skeptical. "Vietnam is never going to be an economic tiger, or anything but a basket case, unless it forswears Marxist ideology, which is still the dogma of the country," he says. "And there's a lot more in normalizing relations for them than there is for us. So what's the rush?"

But to others, there's no more time to waste. "The Japanese may not be the largest investors now, but I guarantee you that one year after the embargo is lifted, they'll be No. 1," says investment adviser Matthews. "Do we want a country like Japan, which is our economic competitor, to gain an economic leverage by having access to cheap labor and a lot of natural resources? Do we want them to have that advantage over us? My answer to that is, no. Definitely, no."

Yeutter (l) and Lyng  talking tough on trade                           Stephen Brookes

Angry that neither side had agreed to budge, five Latin American countries withheld their approval of the 11 other agreements that had been reached during the talks, derailing the confab and forcing the United States to call an emergency, high-level meeting for early April to get through the impasse. With only a few months to sort out the mess, negotiators are less than optimistic; Europe and the United States, one warned, are "staring down the barrel of a trade war."

No one really expected the 96 members of GATT, the body that sets the rules for international commerce, to make dramatic progress on the ambitious agenda set when the talks were launched in September 1986. Montreal was to be merely a midpoint assessment in the four-year process -- a time to take stock, to rally political will and to set out a blueprint for the rest of the negotiations. The Uruguay Round, the eighth such set of negotiations since GATT was formed in 1947, was supposed to bring about a "new multilateralism" in world trade, to tackle entirely new areas of international commerce such as services, investment and intellectual property and to improve the way the GATT system works.

In fact, some progress, if undramatic, occurred in many of those areas. Most of the results were procedural -- oil in the trade machinery rather than solid reductions in trade barriers. "There's nothing there that would cause the CEO of any major American corporation to look up from his cup of coffee," says Gary C. Hufbauer, a professor of international financial diplomacy at Georgetown University.

But negotiators did agree to lower the industrialized countries' barriers to imports of tropical products, an agreement important not so much for its economic value (it covers only about 0.5 percent of world trade) but because it brought the developing countries fully into the GATT process for the first time. Tentative agreements were also reached on reviewing members' trade practices (which should build pressure for more liberal policies) and on a framework for discussing tariff reductions.

The Montreal talks also brought about a consensus on negotiating a multilateral framework for services. Such a deal has been high on the U. S. agenda from the beginning; once defined as "things you can buy and sell but can't drop on your foot," services now account for as much as 25 percent of international trade, and with the exception of a few areas such as transport and communications, are completely outside of international rules. Countries like the United States, with advanced economies in which services play a large part, stand to gain most from the agreement and hope that implementing a legal framework in GAFT will give the same boost to their service industries in the 1990s that reducing tariffs did for manufactured goods after World War 11.

But none of these agreements will amount to much in the absence of one to free up trade in agriculture, which makes up about 14 percent of world trade. Global farm markets are massively distorted by the $200 billion that Japan, the United States and the European Community spend every year to support farm prices, prop up farmers' incomes and subsidize exports. Not only do these programs cost consumers an estimated $1,000 a year each in taxes and higher food costs, they hit governments in the developing world, which cannot afford to spend at the same rate, with an estimated $26 billion annually in lost export sales.

Subsidies linked to production lie at the heart of the problem. They foster overproduction, creating gluts on world markets that in turn lead to export subsidies, import restrictions and further trade distortions. Recent advances in agricultural technology and productivity only compound the problem. But programs to insulate farmers from the ups and downs of the market have become so deeply ingrained in most industrial societies that, despite their costs, they are almost impossible to dismantle. The United States and the European Community have exempted their farm programs from GATT rules for decades, and attempts to address the problem in previous talks have gone nowhere.

This made it all the more dramatic when the Reagan administration proposed in July 1987 that Europe, the United States and Japan eliminate in tandem all trade-distorting farm subsidies by the end of the century. It was a bold, imaginative gesture -- too bold for both Europe and Japan, where it was widely ridiculed as unrealistic grandstanding. But 13 non-subsidizing, grain-exporting countries known as the Cairns Group welcomed the proposal, cautioning only that the deadline be more flexible.

Europe's reluctance was predictable. The Common Agricultural Policy is the EC's most sacred of sacred cows; European negotiators never tire of referring to it as the glue that holds the 12-nation trading bloc together and argue that the community would effectively cease to exist if the complicated subsidization program were to be phased out. The CAP was the community's first major deal, and it has kept most of Europe's 10 million farmers, who work farms that average only one-tenth the size of those in the United States, afloat through most of the postwar period. But it has also been massively expensive, absorbing about two-thirds of the EC's annual budget, and massively wasteful: Among its most visible legacies have been the vast, slowly rotting "butter mountains" and the "wine lakes" that dot the community's economic landscape.

Europe's leaders claim that reform is under way, but the measures taken so far have been too few and too tentative to be fully convincing. Governments from London to Lisbon would welcome cutting their farm spending, but European farmers are a vocal, volatile lot whom politicians ignore at their peril. And with Greece, Spain and Portugal joining the community, their numbers have doubled over the decade.

That has made it tough for Frans Andriessen, the EC's tough-talking agriculture commissioner (who was to move to the external trade slot Jan. 6), to push forward with plans to make the Common Agricultural Policy more market-oriented. There has been some isolated movement: Dairy herds have been reduced by 20 percent since 1984, prices of main commodities such as grains and beef are slowly being brought back to market levels, and last February the bloc agreed to limit rises in overall spending on agriculture to 1.9 percent a year -- substantially lower than the 7.5 percent average annual increase since 1975.

Figures like those do not impress U.S. negotiators, who say the reforms merely freeze production at levels that already distort trade. For the moment, however, it is likely to be as far as the Europeans are willing to go. The European Community seems to be reconciled to the costs of the CAP (some $77 billion a year), and no one expects it to gracefully submit to U.S. pressure. "We are open to liberalization, but we are not prepared to discuss the complete elimination of support measures," said Andriessen, who wants moderate, concerted reform. "We in the EC have taken measures in the short term, but we want others to do the same."

That did not go far enough for the United States. U.S. Trade Representative Clayton K. Yeutter and Agriculture Secretary Richard E. Lyng refused in Montreal to accept any deal on short-term reforms before both sides had agreed to set a firm deadline for eliminating trade-distorting subsidies. "We should not be simply nibbling around the edges" of farm reform, said Yeutter, who has been tapped to serve as agriculture secretary in the Bush administration. "We've got to get to the heart of the problem."

There were other doubts about the depth of the European Community's commitment to reform. Says Daniel Amstutz, chief U.S. agriculture negotiator in the Uruguay Round, "What is frustrating is that the EC only wants a freeze and a possible rollback in internal supports. But it has said nothing about market access, nothing about export competition ' "

As positions hardened in the final night of negotiations, Agriculture Minister Henri Nallet of France called a news conference to mock the American intransigence, challenging, "Do they want to negotiate or not?" There was a flurry of excitement at one point, as word leaked out that negotiators were thumbing through a thesaurus to find a substitute for the word "eliminate" that both sides could live with. Lyng suggested a few choices of his own: kill, end, abolish, phase out, terminate, murder. One participant muttered of the last option, "I can think of a few people he probably had in mind."

No substitute was found, and the talks broke off. Many now fear that the time to cut a deal is running short. "I'd be very surprised if the agriculture question is resolvable in this kind of time frame," says Alan J. Stoga, chief economist at the consulting firm Kissinger Associates. "We're talking about almost unimaginable changes in how the industrial world treats its agricultural sector."

Analysts are cautious about predicting in the April talks. It may be in the nature of trade negotiations that tough issues are never resolved until the eleventh hour. "The United States is playing the 'hard' role, the Cairns Group is pointing the way to compromise, and the Europeans are playing the reluctant maiden who is slowly being lured out," says Hufbauer. "I think this kind of role-playing will continue right up until the end."

With a new U.S. administration and a new EC Commission, the group's executive body, both coming into office in 1989, there may be some changes in those roles. The appointment of Carla Hills as the Bush administration's trade representative, Yeutter's shift to secretary of agriculture and Andriessen's new position as external trade commissioner could be the catalyst for diplomatic initiatives. Ongoing pressure from the developing countries and an economic summit coming up in May that is expected to concentrate on agriculture may also focus European and American minds.

For all its apparent commitment to a subsidy-free world, the United States may blink first. The Reagan administration has never completely sold the idea to either Congress or American farmers, and support for protection of one kind or another remains widespread. Some observers say the administration may have oversold its position from the beginning, first by blaming problems in the agriculture sector on unfair foreign competition, then by promising that the GATT talks would resolve the problem.

Yeutter insists that most American farmers will support the plan if it is undertaken by all the major exporters at the same time, but observers remain doubtful. "It does surprise me, the amount of enthusiasm in Washington for what is undoubtedly theoretically the correct policy, but which in practice hasn't met very many political tests," says Stoga. “And then to go to the rest of the world and say, 'We're prepared to do this, and we're going to beat you up to get you to do the same!' I don't think we're ripe for it, domestically. I'm pretty sure that the Europeans are not, and I don't see any great ground swell of reformist fervor in Japan. So where is our leverage?"

A number of U. S. farmers, in fact, find the European position rather to their liking. "There were observers at Montreal from the commodity groups who were hoping that exactly what happened would happen," says George E. Rossmiller, executive director of the International Policy Council on Agriculture and Trade. "Sugar, dairy, peanuts - they all depend on our GATT waiver."

Congress, meanwhile, appears ready to push ahead aggressively with export subsidies. Some $2.5 billion is earmarked in the new U.S. trade bill to promote farm exports through September 1989, and with talks on a new farm bill due to begin sometime in the next two years, momentum for even more spending could gather fast. The chairman of the Senate Agriculture, Nutrition and Forestry Committee, Patrick J. Leahy of Vermont, has left no doubt that subsidies would be increased unless a commitment on long-term reform was reached soon. "American farmers," he told reporters in Montreal, "should not be asked to bear the burden of unfair competition."


The EC's Frans AndriessenWith Congress digging in its heels, the Bush administration may decide to backpedal to a more sustainable position. "I think agreement on agriculture is closer than meets the eye, because the position the Europeans are taking is about as far as we're ever going to get Senator Leahy and the agriculture committee to go," says Georgetown's Hufbauer. C. Michael Aho, director of economic studies at the Council on Foreign Relations in New York, agrees: "What Leahy and company were saying in Montreal wasn't a threat," he says. "That was reality."

Other factors may persuade U.S. negotiators to soften. A lower dollar has made American agriculture more competitive on world markets even without expanded subsidies, and by settling for gradual cuts in subsidies, President Bush might get more valuable progress elsewhere. "There's a trade-off for the administration," says Hufbauer. "If it narrows its focus, it can get deeper liberalization in at least a few areas -- a really substantive agreement in intellectual property, for example."

Despite the inconclusiveness of the Montreal talks, most players in the game, like Canada's minister for external trade, John C. Crosbie, insist that GATT is "alive and well, with some aches and pains.” But others see bilateral deals and "minilateral" blocs of like-minded trading partners --Europe's 1992 integration, for example, or the U.S.-Canada free-trade agreement -- as the arena in which the important trade issues of the day are being worked out. The United States has indicated that it is receptive to these kinds of special trading relationships, and Japanese diplomats have been taking soundings on the issue in Washington.

This prospect -- a world of rival trading blocs -- worries most economists, who see it resulting in higher tariffs directed toward nonmembers that would strangle world trade and derail global economic growth. It is also a path that most of the U.S. business community views with real concern. These concerns may persuade the Bush administration to soften the U.S. negotiating position in order to preserve GATT. The system may not be perfect, says Citicorp Chairman John S. Reed, "but we just don't like the alternative."

Opium poppies, Thailand                                                                    B. Cabe

Together with thousands of small-time smugglers, they control a river of heroin that runs from the remote opium fields of Burma to secret heroin refineries along the Thai and Laotian borders, down back roads through Thailand to Bangkok, up to Hong Kong by ship and then on to the streets of Australia, Europe and North America. Huge amounts of highly refined Southeast Asian heroin, of far better quality than the impure, brownish heroin that comes from Mexico, Pakistan and Afghanistan, have been pouring into the drug markets of New York and Los Angeles since 1987, and more crosses the border every day.

It arrives in thousands of ways: hidden in crates of radios and tape recorders from Hong Kong factories; packaged inside lawn mower tires; "body-packed" by couriers who hide it under their clothes; even sewn inside dead goldfish. Supply has skyrocketed - heroin seizures have more than tripled since 1985 - and so has quality: What is sold on the street now is more than 40 percent pure, up from only about 8 percent just a few years ago.

So far, Washington's war on drugs has been aimed at the epidemic of crack cocaine that has swept the country since the mid-1980s. But a growing number of doctors, drug officials and politicians warn that an even greater threat from heroin is closing in fast. Significant heroin busts are made almost every week, with little evident effect on either price or supply. Last February, for example, the FBI was shocked to discover that the seizure of a $1 billion, 800-pound shipment -- enough to supply every addict in New York for a year -- had only a “negligible" effect on prices. "It told us that there's a lot more heroin out there than we know about,” said Dave Binney, the head of FBI drug investigations.

What has many drug enforcement and medical authorities worried is that the same factors that fueled the spread of crack easy availability and low price -- could set off a similar explosion in heroin use. And there is another factor: Unlike traditional addicts, few new users inject the drug. Instead they combine heroin with crack and smoke the mixture to get the effects of both drugs simultaneously, which leads, many fear, to a double addiction.

William Hopkins, director of Street Research in the New York state Division of Substance Abuse Services, has seen the future firsthand, and he's scared. He and his team of researchers go undercover for weeks at a time on the streets of New York, keeping track of which drugs are popular and how they are sold.

"We see more people selling heroin than ever before,” Hopkins told a hearing of the Senate Judiciary Committee last August. "Smoking heroin with crack has widely spread, and we believe it is growing. And growing rapidly."


Opium smoker, Northern Thailand                          B. CabeSmoking heroin is not a new phenomenon. It’s been a favored method in Asia since the 1920s, and appears to be coming back in fashion because of the fear of spreading AIDS through shared needles. Instead of injecting the drug, a user simply spoons some onto a piece of tinfoil, holds a lighted match under it, and inhales the upward-curling smoke through a rolled-up bill. It's known as "chasing the dragon."  Mixing heroin with cocaine has been around for a long time, too. Older addicts call it "speedballing" and say it smoothes the sometimes-edgy cocaine high. A crack high can be more of a roller coaster than highs from most drugs. Smoked in small, hard pellets called rocks, crack produces an intense but short-lived euphoria, followed by a depression so severe that it sometimes leads to suicide.

Therein lies the key to heroin's growing popularity. Sprinkling a bit onto crack can extend its effects for as much as an hour and can soften the crash that follows. Hopkins and others report that dealers, always on the lookout for new products, are now selling souped-up sandwiches of heroin and crack called "moon rock," "parachute rock" or "speedball rock" in small capsules for less than $15 each, a little more than the price of a similar amount of regular crack.

Buying heroin in America's biggest cities is almost as easy as buying aspirin. It is available in glassine envelopes, in short heat-sealed sections of ordinary drinking straws (known as HIS: heroin in a straw) or in vials. Business goes on around the clock, seven days a week, and is often better organized than many legal operations. Some dealers even pass out business cards, printed up with a street comer address and part of a phone number (to be filled in at the last minute). There are sale days and bargains and shopping malls, where a buyer can select whatever drug he wants. If that is too much trouble, home delivery can be arranged, the drugs brought by children on bicycles.

Dealers are said to be targeting users under the age of 22. Already hooked on crack, eager to try something new but unwilling to start using needles, younger users have few compunctions about starting in on heroin -- especially as the price comes down. No studies have been done on how long it takes to become addicted to heroin this way, but addiction appears to be inevitable. And that has enforcement officials concerned that a whole new generation of young, poor, poly-addicted users is emerging.

The people growing rich on this trade belong to international Chinese organized crime syndicates, many based in Hong Kong, which maintain connections in Chinese communities in cities from Bangkok to Los Angeles to Amsterdam. The highly refined heroin they supply, says the Drug Enforcement Administration, now accounts for more than 40 percent of the American market, up from 14 percent in 1985. And the profits they make are huge. In its final form, adulterated and having been passed through many hands, a kilo can bring $1 million to $5 million on the streets of New York. The opium from which it was made, meanwhile, had been bought for just a few hundred dollars from a farmer in the highlands of Southeast Asia.

The emergence of the so-called Chinese connection has been partly due to the prosecutions in recent years of leaders of the big Italian organized crime syndicates, which traditionally ran the heroin trade from Southwest Asia into the United States. Chinese networks, which had previously supplied relatively small amounts of heroin, were quick to step into the void.

But the trade also has blossomed from nearly a full decade of bumper opium crops in the fertile regions of Burma, Laos and Thailand, the countries of Asia's Golden Triangle. Burma has emerged as the world's biggest supplier, and the amounts being grown there are staggering: Drug enforcement experts in Bangkok estimate the 1990 opium poppy crop to be about 2,600 metric tons, up from about 1,300 in 1989. An additional 350 tons are being produced in Laos, and as many as 50 tons will be grown this year in Thailand.

The heroin trail starts in thousands of small fields in the remote mountains where the opium poppy, Papaver somniferum, thrives in the alkaline soil. Poppies are by far the largest crop for most of the Burmese hill people. By some estimates, as much as 90 percent of the cultivated land in the northeastern pail of the country is given over to them, and some 290,000 acres are thought to be under cultivation.

Tens of thousands of people are involved in growing, refining and transporting the drug, and tens of thousands more profit indirectly from the money that the opium trade brings in. In many areas, it is the only crop that makes economic sense. It takes about 2,000 poppies to produce a kilo of opium, but once grown, the valuable crop is inexpensively transported by mule through the hills.

The crop is sown in the late fall and is usually harvested about three months later, soon after the plants' white and purple petals have fallen off. The small, green seed capsule that remains is slit several times with a sharp, curved knife, and almost immediately a whitish sap begins to ooze out of the wound. Overnight, the sap dries into a dark brown gum, opium.

Some of the harvest is smoked by the villagers themselves, mostly older people, who roll a bit into a small ball and put it on a pin, holding it over a flame until it starts to smoke, then dropping it into an opium pipe. But most of the crop is wrapped in banana leaves and carried by mule to hillside refineries in the border areas, to be turned first into morphine, then into heroin.

The processing is done in small, makeshift labs, often manned just by a chemist, a few assistants and a contingent of guards; all that is really needed is a water source.  In some areas, established refineries have been running for years, hidden under a cloak of camouflage netting and often surrounded by mine fields. All are well-protected, both from authorities and from competing traffickers; in Burma, a few are even reputed to have antiaircraft guns.

The initial refining step is quite simple, even crude: The opium is dissolved in hot water and mixed with lime fertilizer, which separates the morphine from the rest of the opium chemicals. Filtered, solidified with ammonia and then dried, the resulting powdered morphine has been reduced to one-tenth the weight of the opium.

But then the process gets much more delicate. Equal portions of morphine and acetic acid must be heated together for six hours at a precise temperature, binding the two chemicals into an impure form of heroin that is more than twice as strong as e original morphine. The brownish powder, when dried, is purified several times with ether and hydrochloric acid. The final product -- a fine, almost fluffy powder called diacetyl morphine -- is China White.

Once dried, the heroin is measured into 700-gram units and wrapped in paper or put into plastic bags, each stamped with an identifying logo. Brand names are important: One of the most famous is called Double UO Globe, made in Laos, which pictures two lions holding a globe in their paws. There are dozens of others, mostly from Burmese refineries; Crouching Lion, Lucky Strike, Panda and Dragon are a few. Each has its own reputation for quality.

With dozens of refineries now in operation, the stream of heroin out of Burma has turned into a flood, and the government in Rangoon appears unable, or unwilling, to do anything about it. That has partly been due to the political instability that has dominated the capital since the riots and subsequent military takeover in 1988. With a restless population and some 20 insurgency movements in the border regions, the military has been hard-pressed to devote the few resources it has to fighting a drug war.

For most of the past four decades, in fact, Rangoon has been trying to get full control of the northern and eastern provinces where the traffic flourishes. Ethnic minorities make up about 30 percent of Burma's population, and groups like the Kachin, the Karen, the Arakanese, the Shan and others have long insisted on regional autonomy, even independence. Most of them maintain their own armies, sometimes numbering thousands of troops. Heavily armed and fiercely independent, often under the leadership of a charismatic warlord, groups such as the Kachin Independence Army, the Wa National Army, the Pa-0 National Liberation Army, the Karen National Liberation Army and dozens of others roam with little interference from the government.

The funding to keep the regional armies going comes almost entirely from smuggling, say Thai authorities. Teak, gold, jade and antiquities are all taken over the border into Thailand. But the big money-maker for all of them (with the exception of the Karen, a uniquely anti-drug group) is heroin. "They all claim they're fighting for their independence," scoffs Lt. Gen. Chavolit Yodmani, head of Thailand's Office of the Narcotics Control Board and the director of his country's war against drugs. "I don't believe it. Many of them are just drug trafficking organizations."

As much as 90 percent of the heroin from Burma is said to be under the control of a single opium warlord: an enigmatic, notorious figure who operates under the nom de guerre of Khun Sa. Born Chang Chi-fu in 1934, Khun Sa heads the Shan United Army, a heavily armed force of 5,000-6,000 that controls a 200-kilometer stretch of the Burmese-Thai border where most of the refineries are located. Kicked out of Thailand in 1982, he now operates out of a fortified headquarters in the Doi Lang mountain range only a few kilometers inside Burma.


Khun SaWhile Khun Sa admits to being involved in the drug trade -- and has even boasted about it in the Asian press - he insists that he is the leader of a nationalist movement and the recognized chief of the 8 million Shan people. Claiming only to tax the opium that passes through his territory so that he can feed his people, Khun Sa has offered several times to abandon the drug trade if the United States will pay him $ 100 million a year for six years.

He has found an unusual defender in Abbot Phra Chamrdon Parnchant, a Buddhist who heads a drug rehabilitation program near Bangkok. "Khun Sa does not want to be recognized as a drug dealer," he says. "He says he only collects taxes, and I believe him. " A heavyset man with a penetrating stare, tinted glasses and two gold Cross pens tucked into the folds of his brown robes, the abbot was asked by Khun Sa several years ago to serve as his spokesman. After meeting briefly with Henry Kissinger in 1987, he has been trying, without success, to get the White House to discuss a deal with Khun Sa.

For their part, both Washington and Bangkok continue to regard Khun Sa as a criminal and the Shan United Army as his personal bodyguard and trafficking force.

"The guy's a drug dealer," says a Western drug official in Bangkok. "And he's stronger now than he's been in a long, long time. He's just sitting up there in his own little fiefdom." The Thai government has put a $25,000 price on his head, but there is little that Bangkok can do as long as he stays in Burma. "If he comes into Thailand," vows Chavolit, "we'll grab him."

Unless, that is, his enemies get him first. Some of the armed groups in northern Burma, such as the Kachin Independence Army and the Shan State Army, are occupied with smuggling heroin north into India and rarely clash with Khun Sa. But there is almost constant skirmishing in the hotly contested areas along the eastern border with Thailand, where a half-dozen groups are vying for the heroin trade.

"It's a kaleidoscope up there," says the Western drug official. "Alliances are constantly shifting among the groups. Some that used to fight now are working together. It's a business. And business is business."

Among Khun Sa's most bitter competitors, Thai observers say, is the Wa National Army, another self-styled independence movement heavily involved in drugs. It has become stronger in recent months since teaming up with the Burmese Communist Party, which under the leadership of Taik Aun is thought to control many of the opium growing areas. (The party has also reportedly enjoyed close ties with China, which it has used as a source for heroin refining chemicals.) Conflicts between the WNA and the Shan United Army have been heating up since fall, often spilling violently over the border into Thailand. (Bangkok sent police reinforcements into the village of Ban Arunothai in early December after fighting broke out between the two groups, each of which accused the townspeople of helping the other.)

While Khun Sa and his army appear to have a firm grip on refining and trafficking opium, Thai authorities say much of the cultivation is under the control of the 3rd and 5th Chinese Irregular Force, headed by Gen. Lee Wan Huan. Numbering fewer than 2,000 troops, the CIF is a descendant of a force of nationalist Kuomintang troops driven out of China and into the Burmese border area after the communist takeover in 1949. Turning to the heroin trade to finance several aborted invasions of China in the early 1950s, the Kuomintang troops gradually degenerated into full-time traffickers. They were the ones who centralized the opium marketing structure (forcing hill tribes to pay an annual opium tax), set up trading routes over the border into northern Thailand and imported chemists from Hong Kong to set up refineries. By the late 1960s, they were producing heroin in the jungle that was almost 99 percent pure.


Militia  fighters in Burma's Shan State                          Stephen BrookesPerhaps Khun Sa's most dangerous enemy -- and a major player in the complex and delicate politics of northeastern Burma -- is the 5,000-man Karen National Union, led by Gen. Bo Mya. A genuine independence movement, the KNU is fiercely opposed to drug trafficking -- any of its soldiers who get involved with drugs face a death penalty -- in part because it depends for much of its funding on outside Christian organizations.

But the group also taxes shipments of jade, tungsten and tin that pass through the 800-kilometer-long region it controls, and its troops are heavily armed. Six Karen were arrested on the Thai border in December with hundreds of AK-47s, M-16s, mortar shells and grenade launchers, as well as more than 20,000 rounds of ammunition.

Unable to deal with both narcotics traffickers and antigovernment insurgents like the Karen and the Burmese Communists, Rangoon has been focusing on the insurgents -- to the point that many believe it is now in bed with Khun Sa. In 1988, the Bangkok press reported that Rangoon had cut a deal with the drug lord, giving him free rein along the border in exchange for protection for teak exports (on which the government depends for foreign currency).

Since then, government checkpoints have been relaxed and troops withdrawn from many of the drug trafficking areas. And in March 1984, the Thai press reported that a secret meeting had taken place between Khun Sa and Brig. Gen. Aye San, the head of Burma's Eastern Military Command. The Burmese official agreed to leave Khun Sa alone if he would use his forces against the Karen insurgents and the Burmese Communists. "It's become live and let live with Khun Sa, so the Burmese government can concentrate on the fight with the Karen," says the Western official in Bangkok.

Washington also has long suspected that much of the equipment it has provided to fight opium production, notably helicopters and transport aircraft, has been diverted to the military's anti-insurgency drive. Because of these concerns and in protest against the military's brutal suppression of the 1988 uprising, in which hundreds died, Washington cut $14 million in annual aid last year and refused to recertify Burma as cooperating with antidrug activities. (Decertification means a country is automatically disqualified from receiving direct bilateral aid and requires the United States to vote against it in such multilateral organizations as the World Bank.)

The aid was not doing much good anyway. Many top Burmese police officials, including the head of the narcotics suppression unit, lost their jobs after the military takeover in 1988, and the few antidrug forces left in the country are understaffed, poorly trained and badly equipped. At the height of its efforts a few years ago, the government had five aircraft in its opium eradication squadron: slow, prop-driven Thrushes that could not go into insurgent-controlled areas without risking being shot down. In their best year, the planes sprayed 31,000 acres, about 10 percent of those under cultivation, and there was no eradication effort at all last year. Each year from 1984 to 1987, according to a recent U.S. General Accounting Office report, the Burmese seized an average of 1.5 metric tons of opium, less than one percent of the crop. The effect on traffic was "negligible."

Rangoon has tried halfheartedly to defend itself; the state organ Working People's Daily claimed in August that Burma had kept $16.5 billion in heroin from reaching world markets. But the government's usual attitude has been benign neglect; the Working People's Daily observed in 1988 that "opium from the Golden Triangle will spread throughout the world. For Burma, it is not our business what happens once it gets out. We can only look on with folded arms." With that kind of attitude among top brass, the country's opium problem is likely to become increasingly intractable.


Bad as it is there, Burma is not the only source of high-grade heroin. Some 300 metric tons of opium has been coming out of the and plateaus of northern Laos at least since 1987, aided, Thai and Western officials say, by top figures in the Marxist government of Prime Minister Kaysone Phornivane. Bangkok officially accused Vientiane of being involved in trafficking in 1987, and the State Department says dryly that the United States "continues to receive reports of the involvement of senior Lao officials in the narcotics trade."

Khun Sa himself is widely reported to enjoy close personal and professional ties with the prime minister and to have moved a number of his refineries into Laos's northern Sayaboury province near some of his Burmese operations. "Two years ago, Khun Sa formed an alliance with Kaysone in Laos," says Francis W. Belanger, the author of "Drugs, the United States, and Khun Sa." Belanger, who met with Khun Sa early in 1989, says flatly that the Burmese drug lord "now has refineries in Laos and can produce his heroin without any outside interference. And if things go to hell in Burma in the next year or two, he can move into Laos and continue his operations there."


The Thai-Burmese border, Mae Sai                                                            B. CabeLaos would be difficult to patrol even if the government were really trying. Like Burma, vast stretches of it are virtually inaccessible. Narrow mule trails and waterways take the place of roads. The economy is in a semi-permanent shambles, making the opium and marijuana trade often the only way for poor villagers to survive. Provincial officials, who rule with a fair degree of autonomy from Vientiane, also depend on the trade: Two Laotian smugglers arrested in Bangkok last May told police they had paid local Lao officials about $2,000 per kilo to ensure safe passage out of the country.

Much of the Laotian heroin is simply ferried across the Mekong River into Thailand late at night at dozens of anonymous crossing points, then funneled into the town of Ban Houai Sai, long notorious to Thai police as a major trading center. But as surveillance has picked up all over Thailand, a new route has reportedly opened up out of central Laos: Multiple shipments are said to be going east down Highway 13 out the Vietnamese port of Da Nang.

Washington has had little luck enlisting Vientiane in the war on drugs. It offered to fund a crop substitution and narcotics control program in 1987 but was met with mostly blank looks, and Laos was taken off the U.S. aid list last year. Things may or may not be changing: Laos has reportedly started a $5.8 million U.N. plan to eradicate the poppy, though the State Department reports "no known poppy eradication" in the 1988-89 growing season. Vientiane is said by Western officials to be eager to get back on the aid list.

The third comer of the Golden Triangle, Thailand, has been much more successful in attacking trafficking. About 50 tons of opium are still being produced each year in the highlands around Chiang Mai and Chiang Rai, in the remote northern stretches of the country.

Bangkok has been aggressive in trying to wipe out the remaining poppy fields and in getting its hill tribes out of the business. Nine different "crop cultivation control" programs have been started in more than 600 villages, and a slow but apparently steady transition is being made away from the poppy crop and into the less lucrative but much safer ones of coffee, lettuce and kidney beans.

Thai authorities have also been trying to crack down on the refineries still operating along the borders. The surge in opium production in Burma, says the State Department, has led to a corresponding rise in refineries in Thailand. And while Thai authorities have managed to smash dozens in the past decade -- nine last year -- and claim to have cut production by 70 percent, the country still harbors a substantial refining and smuggling network.

Even if it can wipe out its remaining poppy fields and refineries, Thailand faces a struggle against smugglers from Burma and Laos. "Thailand is a natural funnel for both heroin and marijuana," says the Western official. "And it's growing. We used to see shipments of 30 or 40 kilos that we thought were big. Now, with the booming economy and the growth in exports, we're seeing shipments of hundreds of kilos."

Getting the heroin into Thailand is no big trick. Most of it is brought over on narrow mule trails at dozens of points in the hills, then gets trucked into small western towns like Mae Hong Son to be sold to middlemen. Some comes over the bridge farther north at Mae Sai, a dusty, beat-up border town that was sacked a decade ago by Khun Sa in one of the city's periodic drug shoot-outs. Mae Sai is the northernmost point of Thailand, and you can pick up Highway I there way down to Chiang Mai, Bangkok and the coast. But even here the border barely exists: Thais and Burmese can cross freely 5 kilometers into each other's country to trade (there is a thriving black market in gold and jade, as well), and the bridge is always jammed with trucks, foot traffic, overloaded bicycles and motorcycles. A handful of border guards, machine guns slung casually under their arms, watch the crowd without much interest. After all, anyone with anything to hide would merely wade across the shallow river a mile or two downstream.

There is an array of Thai forces on the border, including the Border Patrol Police, the Thai 3rd Army, the provincial police and agents from the Office of the Narcotics Control Board. They are supplemented by DEA agents, who have three offices in Thailand, and Interpol. "We've got thousands of people up there,” says Chavolit.

Nevertheless, the border remains porous, and efforts to control the trade sometimes backfire. A strategic road built by the Thais on the Burmese border near Mae Hong Son in the early 1980s was quickly appropriated by Khun Sa, who established three refineries just over the border and used the road to move heroin into Thailand. When Thai officials responded by destroying a 5-kilometer section of the road, the trafficker brought in tractors and earthmoving machinery and rebuilt it. And when one of his men was killed by a mine planted by the Thai border police last April, Khun Sa reportedly moved in 100 men to guard the road. At last report, they were still in the area.

Once inside Thailand, the heroin usually makes its way to either Chiang Mai or Chiang Rai, where officials say the big deals are made, then down to Bangkok or one of the port cities farther down the coast for shipment out of the country. In these towns, a 700-gm bag of quality heroin will run $3,000 to $4,000, and there are big profits for the middlemen who arrange to transport it to Bangkok, where it will fetch 50 percent more than in the north. These middlemen tend to be Chinese Haw: Thais of Chinese descent who are known by Thai names but maintain close contacts with other Chinese in Yunnan province in the People's Republic and in Hong Kong. Some are involved in production: Police in Mae Sai reported in October that Haw merchants were known to be running refineries just over the border in Burma. But most are in the transit business, recruiting couriers to move the drugs south.


Thai  police with seized  heroinThe couriers could be anyone. Some are Haw themselves, and others are drivers who never know what they are carrying. Some are just people who need a little quick cash: Four women were arrested last June near Chiang Mai when a spot police check uncovered 9.2 kilos of high-grade heroin hidden in girdles designed to make them look pregnant. Profits, in a poor country like Thailand, can be huge. A Haw arrested with 34 kilos as he approached Bangkok in December said he was paid about $8,000 to transport the drug, apparently destined for the Netherlands.

Once in Bangkok, some of the heroin passes into the hands of the city's underworld distribution network. There are about 300,000 addicts in Thailand, more than half of them in the sprawling slums of Bangkok, where heroin is sold a gram at a time in brightly colored paper packages.

But most of what comes into the capital city is quickly exported: mostly to the United States, followed by Hong Kong, Malaysia, the Netherlands and Singapore. Huge amounts leave the country in tiny shipments, either mailed - more than 32 kilos was intercepted in the Bangkok postal system in 1988 - or body-packed out by individual couriers (known to Asians as "ant traffickers") on commercial airlines.

Most large shipments go by freighter.  Heroin has been found in plaster Buddhas, in crates of fake jade, even dissolved in fish sauce. While Bangkok's Klong Toey port is still the most important exit point, says the Office of the Narcotics Control Board, increased police surveillance there has pushed some of the smuggling down to little-watched port towns in the southern and eastern provinces. Officials in Bangkok say increasing amounts are being transshipped through Laos to Da Nang, then over to Canada.

As frequently as not, the smugglers are foreigners. About 500 foreigners are in jail in Bangkok on drug charges, most of them Burmese, Chinese, Laotian or Malaysian. Fifteen Hong Kong smugglers were caught in 1988 (with more than half of all the heroin that authorities seized that year), as were 15 Americans and a handful of Middle Easterners and Europeans.

A more recent phenomenon has been the emergence of the so-called ‘African connection.’ European traffickers have been recruiting couriers in poor Sub-Saharan countries, especially Nigeria, and using them to transport heroin out of both Bangkok and the Southwest Asian producing countries, routing them via India, Sri Lanka, Kenya, Nigeria or other countries before going on to New York or European capitals. Some 236 Africans were arrested worldwide in 1988 for heroin smuggling, and Bangkok experienced a mini-epidemic this fall: A Nigerian woman was arrested with 58 kilos of heroin at Bangkok's Don Muang International Airport Oct. 16; two were arrested the next week trying to ship out five televisions packed with more than 20 kilos; another was busted Nov. 23 with about 40 kilos.

For those who get caught, the penalties are tough: Anyone convicted of producing or exporting heroin faces a potential death sentence. Thailand seems to be getting increasingly serious about the drug problem. More than 51,000 were arrested in 1988, up from slightly more than 33,000 in 1986, and police crackdowns are ordered periodically; the most recent was in June. But Thailand lacks any kind of conspiracy law, so it can convict only traffickers it catches with drugs. That means that mostly little fish get caught. "We need to go a step beyond getting the couriers, who aren't so important," says Chavolit. "The big guys won't do it themselves ' "

To close the net around the kingpins, Bangkok is considering a bill that would allow authorities to seize traffickers' assets and to triple penalties if the trafficking is done by government officials. If passed, that provision could make a crucial difference. Corruption is almost a way of life in Thailand, say those who live and work there; it extends from the local cop to the highest levels of the military.

Things are changing, slowly. On Dec. 12, a Thai police investigatory committee accused former police Maj. Gen. Veth Petbarom of being involved in shipping heroin to five countries, including the United States. Veth, indicted in New York on trafficking charges last July, reportedly used his influence to get the drugs through customs checks at Don Muang. "We have to be careful," says Chavolit. "Cases of corruption can take place anywhere, "

Much of the heroin leaving the Golden Triangle goes to Hong Kong, which has emerged as a key base of operations for financiers and traffickers. Situated along China's southeastern coast, Hong Kong has the biggest container port in the world and is one of Asia's foremost banking centers, handling some $50 billion a day. Most of the "Chinese Mafia" organized crime groups involved in the drug trade run the actual smuggling networks and launder profits from there, according to the DEA.


Hong Kong  harbourThe trade has been going on since the 1920s, and the networks have become deeply entrenched. "The proximity to the source countries, the historical connections to Chinese communities elsewhere and the fact that we have very advanced communications and transport links with the rest of the world have given Hong Kong a long history of drug trafficking," says Tsang Yun-pui, chief staff officer of the Royal Hong Kong Police's Narcotics Bureau.

With 200 islands, most of them uninhabited, and hundreds of miles of coastline, it is easy for a trawler to anchor, bury a shipment on the beach and return to Thailand. Sometimes heroin will be dropped off the boat with a floating marker at a prearranged spot, and another boat will zip out from the shore to pick it up. Others drag it underwater in sealed drums; if intercepted by Hong Kong police, they simply cut the cables and let the evidence sink.

That route is still strong, but Hong Kong police say that an increasing amount is coming in through routes that have opened up in recent years. Opium addiction, once a massive problem in China, was wiped out after the communists took power and began executing traffickers. But as the country's economy opened up to the outside world during the 1980s, the heroin trade came back to life. "All the previously used drug trafficking routes from the Golden Triangle through China to Hong Kong have been reestablished,” says Tsang.

From refineries in Burma and Laos, the usual China route extends to Kunming, the capital of Yunnan, where a healthy black market exists, then goes overland to coastal cities like Canton (Guangzhou) and Shanghai. "I estimate that between 30 percent and 50 percent of the heroin is coming in from China," says David Tong, director of narcotics investigations for the Hong Kong Customs Service. "Hong Kong traffickers go down to Yunnan to buy the heroin or to the black markets right over the border in Guangzhou or Shenzhen."

They appear to be setting up networks within the People's Republic: Last year a Hong Kong resident was executed after being convicted of recruiting three Chinese couriers.

With the enormous volume of commerce across the border, intercepting the traffic is almost impossible. Some 12,000 vehicles cross every day, and thousands of commercial and fishing boats sail in and out of Hong Kong every day. "Look at this coastline," says Tong, running his hand over the huge, minutely detailed map of the colony that covers an entire wall of his office. "They could come in here or over here or down here. Almost anywhere."

Officials in the colony say the market has been changing as well. Most of the heroin entering the local market for the past few decades has been a rough, brownish, impure form known as No. 3, which Hong Kong addicts smoke. Now, the purer form known as No. 4 or China White, favored by American and European addicts, has apparently taken over, and the price has dropped as well, from $20,000 a kilo in 1987 to about $11,000 today. "In the last 18 months, the market has changed completely," says James Harris, a DEA agent in Hong Kong. "It's all No. 4 heroin now. So everybody who's in the drug business is potentially an exporter. And we're seeing a lot more local dealers crossing over and going into the international market."

Can the heroin tide out of Asia be stopped? So much has been produced that Asian drug officials say huge amounts are now just being warehoused. Even if every poppy plant in the world were chopped down tomorrow, they say, the market could still be fed for more than a year. That kind of oversupply, they say, will inevitably push prices down, and once that happens a real heroin epidemic could spread.

Sometimes even the people fighting the war wonder if it can ever be won. "What are you going to do?" asks Harris, looking out over Hong Kong's teeming streets and the harbor beyond. "Every time you take out somebody big, there's somebody else ready to step right in."

They called it La Mina  -- “the mine.” Almost every day, armored cars would make the rounds of a network of small jewelry stores in Miami, New York, Chicago and six other cities around the country, picking up boxes of cash. The boxes, outfitted with invoices marking them as gold and jewelry, were driven to the nearest airport, loaded up on commercial carriers and flown to Los Angeles, where they were met by more armored cars and taken to two wholesale operations in the city's jewelry district.

There they were opened, and the cash -- close to $3 million a day -- was counted and sorted on high-speed machines. Deposited into local bank accounts as the proceeds of legitimate jewelry sales, the funds were wired first to accounts in nine banks in New York, then out of the country and into secret accounts in Panama, Uruguay and Colombia before coming to rest in their ultimate destination: the pockets of Pablo Escobar Gaviria and Jorge Luis Ochoa Vasquez, the kingpins of the notorious Medellin cocaine cartel.

But in late March, “the mine” caved in. In what Attorney General Dick Thornburgh called "a very hostile takeover of a major money laundering operation," the Justice Department indicted 127 persons, seized bank accounts in Atlanta, Miami, New York and San Francisco and launched a suit against nine U.S. banks to recover $433.5 million in drug profits.

The 13-month sting operation, codenamed Polar Cap, was the latest and largest in a string of recent federal busts against money launderers, and agents from the half dozen agencies involved were happy about the way it turned out. "We really hurt the bad guys," says one FBI investigator. "We hurt them bad."

Putting the hurt on drug dealers by grabbing their money has become the new thrust of the war on drugs. While busting La Mina was a major coup, investigators say they are only scratching the surface of a multi-billion dollar industry. Drugs are a business -- a very big business -- and hundreds of millions of dollars in cash has to be collected and hidden away daily, until it can be disguised as legitimate income and brought back to the surface. To do that, the dealers need specialists in the fine art of changing dirty money into clean, experts who can set up veil upon veil of secret bank accounts and phony front operations, weaving a paper trail so twisted that anyone trying to follow it will be lost.

This has been a frustrating decade for the war on drugs. The invention of crack cocaine has brought a huge surge in demand, and attempts to stanch the flood of the stuff from its sources in Latin America have been disappointing. So following the money trails that dealers leave behind, and then bankrupting the dealers once they are found, is emerging as a major focus of the anti-drug effort.

Those charged with fighting the war -- the Drug Enforcement Administration, the Justice Department, the Customs Service, the Federal Bureau of Investigation, the Internal Revenue Service and a number of other federal and local agencies -- have been pooling resources and expertise to infiltrate and uncover the hundreds of global laundering networks that the traffickers depend on.

The FBI's David Binney"This has to be the way to go -- interdiction and eradication have been ineffective," says David G. Binney, chief of the FBI's drug section. Salvatore Martoche, assistant secretary of the treasury, agrees.  "The bad guys will put a lot of distance between themselves and the drugs," he says, "but very little distance between themselves and their money."

The amount of money that fuels the drug trade is staggering. Some $300 billion is spent on drugs in the world every year, substantially more than China's entire output of goods and services. More than a third of that is spent in the United States, and almost all of it is in cash, mostly small bills. But cash is hard to spend in any interesting amount without arousing suspicions, and it is risky to just keep around in boxes. So traffickers have to hide it (from the police and from other crooks), either by getting it into a secret bank account in an offshore haven or by making it look like legitimate income.

Drug dealers rarely wash their own money; they don't need to. A new breed of highly sophisticated specialists has come of age since the early Seventies, young financiers who know their way around the international banking world and often have well-placed contacts in the financial community.  "The traffickers are good at one thing; moving drugs," says Brian M. Bruh, head of the IRS's criminal investigations division. "So they hire professionals in the movement of money who are willing to help them."

While a few are actually part of the trafficker's organization, most are independent operators who hire out, often to competing drug lords. "Different drug operations, as many as 10 or 12, will share the same money launderer," says Michael Omdorff, head of the DEA’s financial investigatons section.  “And in most cases, they never lay eyes on the drugs.”

The launderers range from what one IRS official calls the "cash-and-carry types, who pack up suitcases with their clients' money and head for the nearest offshore bank," to elaborate operations with money wiring facilities, telex machines, automatic bill-counting equipment and an international network of legal and financial experts. And while some operations (like Polar Cap's La Mina) involve hundreds of people, others are streamlined and harder to detect.

"We've had people testify that they could launder a million dollars a day fairly easily by setting up an operation of five or six people and a half dozen banks," says Omdorff.


Attorney General Dick ThornburghThe rewards can be fantastic, even for smallish operations. Roberto Milan-Rodriguez, a 37-year-old accountant who ran a laundry for years out of his small Miami office, was picked up in 1983 packing 20 boxes of cash, some $5.4 million in $100 bills, into his Lear jet at Fort Lauderdale Hollywood International Airport. Searching his home and office later, investigators found automatic weapons, 64 pounds of cocaine, $45,000 in counterfeit money, $350,000 worth of electronic security equipment and the records of a network that laundered funds for more than a thousand clients.

Milan-Rodriguez later admitted washing as much as $200 million a month through Panama (with the paid cooperation of the country's leader, Gen. Manuel Antonio Noriega) and was making $300 million a year in profits - all while running a respectable accounting service.

Aside from knowing their way around both the financial and drug communities, the launderers do not fit any particular pattem. There was Isaac Kattan Kassin, who laundered $100 million a year in the late Seventies for a dozen Latin drug cartels using a carefully cultivated network of crooked bank employees;  Jesus Anibal Zapata, convicted in April last year on charges of laundering more than $45 million for Escobar; Terry Trupp, the mayor of South Lake Tahoe, Calif., arrested in the spring for running a ring that, as he bragged to undercover agents, had been around for 20 years. Three former DEA agents were charged in November with laundering $608,000 in drug money. Even a former Cabinet member has gotten into the act: Robert B. Anderson, who was Eisenhower's second-term secretary of the treasury, pleaded guilty in 1987 to operating an offshore bank designed to evade income taxes; the government claimed that his partner had used the bank to launder drug money.

The launderers have been getting more sophisticated because the government has become more determined to catch them. Starting in 1970 with the Bank Secrecy Act (which lay near-dormant for more than a decade) and the subsequent Money Laundering Control Act of 1986, the Anti-Drug Abuse Act of 1988 and enhanced use of the Racketeer-Influenced Corrupt Organizations statute, Washington has been developing a systematic attempt to track the flow of large cash deposits and international money movements.

Tracing the flow of drug money through the banking system "is like any other asset-tracing procedure: You search for the ultimate source of finds coming into the bank and the disposition of funds leaving the bank," says Charles Morley, a former IRS investigator who now heads the CGM consulting group. "Both ends of the transaction can lead you to hidden sources of income, hidden assets, previously unknown witnesses and other principals."

The linchpin of the legal framework is a rule that all financial institutions (including banks, credit unions and savings and loans) must file a Currency Transaction Report with the IRS on any cash transaction of $ 10,000 or more. That puts pressure on the dealers, who now have to scurry around making lots of $9,999 deposits instead of one big one. (Traffickers beware: Banks are also required to watch for - and report -- just such suspicious transactions.)

But the rule also catches them at the last really vulnerable point in the laundering chain; once deposited in the system, money can be wired almost anywhere in the world in a matter of hours, leaving behind a trail so thin it is almost impossible to trace.

Not only banks are being recruited into the war on drugs. To make it harder for traffickers to turn drug money into cars, jewelry, real estate and other big-ticket items, some businesses are also now required to report large cash deals, and it is a felony offense not to file. It is also a felony to knowingly do business with drug dealers or to cooperate with them by structuring payments to get around the reporting requirement. If a car dealer, for example, takes $9,500 in cash and a check for the rest from a client who turns out to be a drug dealer, he is in big trouble.

Bankers grumble about the new regulations, and the more stringent ones they fear are on the way. But they have become much more obliging since the early Eighties, when a wave of investigations into corrupt bankers rocked the industry. Official implications that American banks were holding hands with drug dealers (summed up in a 1982 remark by Customs Commissioner William von Raab that some banks had "a sleaze factor higher than their interest rates") stung badly. Anxious to turn their image around and fearful of the penalties ($10,000 per shady transaction, per day, per place of business) that they face under the new legislation, the banks have been eager to comply. Currency Transaction Report filings shot up from almost none at the beginning of the decade to more than 7 million last year.


William von Raab“The banks have really cleaned up their act,” says von Raab, who retired as customs commissioner last month. "When I made that speech seven years ago, the banks felt they were immune, that they were providing a service and had no responsibility to know their customers. We changed their mind."  In fact, it was apparently a bank tip-off that led to the arrest of 16 persons in May on charges of laundering $ 100 million a year for a Colombian drug cartel headed by Jose Santa Cruz Londono, thought to supply about 80 percent of the cocaine that reaches New York.

But eager to forestall efforts to lower the reporting threshold or put new requirements on wire transfers, the American Bankers Association formed a task force on money laundering in March, and has appealed for record keeping and reporting regulations to be simplified. "There is no question but that the banking community needs to assist the govemment in keeping control over cash, and we're glad to cooperate," says Earl Hadlow, chairman of the task force, who adds that transaction reporting requirements have cost his Florida bank millions of dollars. “But we need a system that banks can comply with and that won't result in an inundating flood of paper which is so overwhelming that the government can't separate the wheat from the chaff.”

Bankers also complain that they do not get enough feedback on how the information they are providing is being used. "We don't get enough guidance from Treasury," says John Byrne, the Bankers Association's legislative counsel. "I don't think we get enough on how to look out for shell cotporations. If they get a tip that money laundering is taking place in a particular area, they ought to inform bankers there."
    
What the banks are really scared of, though, is the employee who may not be able to resist a launderer's bribe. There have been dozens of such cases; three upper-level employees of the Great American Bank in Florida (including the vice president of the loan department) were convicted in 1985 of taking bribes not to report some 400 transactions. In a little over a year, they had laundered $94 million.

To protect themselves, most large banks have started broad training programs: When all the employees from tellers on up know what a laundering operation looks like, it gets much tougher for a rogue loan officer to bring off a scam for long.

But no system is foolproof against greed. "Human nature being what it is, if you look hard enough you're going to find someone who has a price. And, unfortunately, in the narcotics business the wages are extremely high," says consultant Morley. "There are some 15,000 banks in the country, and that means tens of thousands of people working for them," explains the IRS's Bruh. "Where there's this kind of money, people will be corrupted."

As banks in the major urban areas -- especially the key drug distribution centers of Miami, Los Angeles and San Antonio, Texas -- get more sophisticated, launderers are heading farther afield in the search for anonymity.

“Some of the people in the small towns don't perceive this to be a major problem yet," says Charles Intriago, publisher of the newsletter Money Laundering Alert. "But they should. The Laundromat of choice is the small bank in the small city."
    
But no amount of training will stop laundering in a bank that is owned by the launderers themselves. “There are major launderers who have bought banks,” says Morley. “How hard is it to do? You just put a front operation in." The IRS is investigating a number of banks (it won’t say how many). And experts admit that, for a launderer, buying a bank makes sense: “It's what I would do,” says Charles Saphos, head of the Justice Department's narcotics section.
    
While law enforcement agencies give the banks high marks for their new willingness to cooperate, they are pushing for legislation requiring the banks to report large or suspicious international wire transfers. That is much more complicated than reporting cash deposits, and it worries the banks. They argue that the huge amounts of money that flow in and out of the United States, an estimated $200 billion every day, make reporting almost impossible. Trying to trace even the biggest current of drug money through an ocean that size, say bankers, is doomed to fail, while saddling the banks with huge expenses.

The problem is that legal and illegal transfers look much the same. “To a government agent, a transaction looks suspicious. To a banker, it looks like a normal transaction. It's a serious problem,” says Morley.

"Treasury has come up with four or five scenarios for what could be a suspicious wire transaction, and we have advertised those to the banking industry. But beyond that, there isn't a lot we can do," says Byrne of the Bankers Association. "Unless someone tips you off, the wire itself isn't going to give you enough information to justify a phone call to the feds."
    
The other stinger in the feds' arsenal is legislation allowing them to seize traffickers' or launderers' assets. Previously, only the profits (usually 6 or 7 percent of the money washed) of an operation could be seized. But under the Comprehensive Crime Control Act of 1984 and the Anti-Drug Abuse Act, convicted launderers can be wiped out, losing any and all assets connected with the crime.

And they have been. From $27.2 million seized in 1985, the figures have risen steadily to some $207 million last year and a projected $450 million for this year. Most of that money gets dumped in the Treasury, but more and more is getting cycled back into the fight against drugs.

The Justice Department has split more than $250 million with state and local authorities, and that could grow by another $100 million this year alone. Attorney General Thornburgh said earlier this year that he wanted to turn the profits from drug running into "offensive weapons for law enforcement."


Juarez, Mexico:  Launderers often use exchange housesTo avoid getting caught and having their assets turned against them, the launderers have been working out ways to get their illicit funds into the banks without setting off the reporting alarm. The most basic way is simply to break large piles of drug cash into lots of little piles, small enough to slip under the reporting threshold, a process known in the trade as "smurfing." A trafficker will dispatch his couriers, the “smurfs”, to different banks to buy cashier's checks and money orders in values less than $10,000, which are then delivered to another agent who deposits them in one of the trafficker's accounts.

Bigger banks such as Bank of America, which has some 900 branches around the country, are particularly vulnerable, since smurfs can make deposits into the same account from different branches without attracting attention. (Bank of America is said to be more alert now than it was in 1986, when it was fined $4.75 million for failing to report 17,000 cash deposits and transfers.)

Smurfing rings come to light regularly The IRS busted a typical one in 1987, when it got a tip that a certain Guillermo Garces was buying money orders with cash every day from as many as 13 banks in Florida. Each order had been made out for exactly $1,980: $2,000 minus the one percent smurfer's fee.
    
A search of his home turned up $900,000 in cash hidden in mirrored planters, as well as instructions, rules, route maps and monthly "travel vouchers" for his assistants. Eight members of the ring were finally convicted on felony charges.

The fact that such rings exist does not bother federal investigators: Keeping a small army of couriers on hand raises both the dealer's overhead and his vulnerability. Says the Justice Department's Saphos, “it raises the chance of getting a dissatisfied employee who'll flip for us.”  So dealers, looking for more sophisticated systems, are turning to securities brokerages, currency exchanges and commodity firms.
    
They are finding plenty who will play along. One brokerage, American Investors Inc., was found guilty in 1987 of conspiracy and failing to report $2.5 million in cash it passed through the accounts of dead or fictitious people in order to conceal its owners. And in May last year, E. F. Hutton & Co. Inc. was fined $1 million after pleading guilty to charges it had laundered $1.5 million in cash between 1982 and 1984 for some of its clients, said to be members of organized crime.
    
Few stones are left unturned in the search for the perfect laundry. "Drug dealers are starting to use businesses you wouldn't expect laundering to go through, like precious metals," says Clifford Karchmer, associate director of the Police Executive Research Forum in Washington. “We'll probably find that a trend is developing in the use of commodities firms, as in Chicago, or anyplace where the haystack is so enormous that finding the needles in it becomes almost impossible.”
    
Traffickers are also making extensive use of dozens of the international currency exchange houses that dot the border between the United States and Mexico, says the DEA. Seven of them were charged in December with laundering $3.5 million, cooling off hot money for a hefty fee of 8 percent, and the practice is thought to be widespread.


The Justice Department's Charles Saphos“Currency exchange houses are a travesty around here,” says Saphos. “It's hard for us to criticize South American governments for having inadequate controls over their currency flows when we've got unregulated currency exchanges all up and down our borders. We don't license, charter or insure them. We don't even know where they are.”
    
Casinos are popular, too. Huge amounts of cash move through them every day, and launderers can buy chips, redeem them later and wire the proceeds directly out of the country. One of the first international laundering rings, in fact, was run out of a casino in Las Vegas during the 1940s, where Benjamin "Bugsy" Seigel cleaned up Mafia bookmaking and prostitution profits. Investigators say that the traditional Cosa Nostra has stayed away from laundering money for drug dealers but still has powerful networks set up for its own use.
    
“Organized crime figures have been laundering money through casinos, labor unions and sham corporations for three or four decades longer than the drug dealers,” says Karchmer. "Their money, once it's laundered, tends to stay laundered.”
    
Money washers also use front businesses that handle a lot of cash, such as restaurants, bars and movie theaters, to hide dirty money by mixing it with clean. It’s easy enough to do: By inflating sales reports and expenses, or writing checks to accomplices for bogus services, a well-run front operation can launder thousands of dollars a day with little risk of detection. Almost any kind of business can be used, even professional sports organizations; confessed launderer Roberto Baez-Alcaino is alleged to have used Antillas Promotions, a Miami-based fight promotion company he owned, to wash drug money.

The stricter scrutiny on the banks and the increased pace of federal sting operations have made traffickers nervous, and investigators say many are just sitting on their money. That's risky: Drug dealers need to have some cash around to pay off suppliers and meet day-to-day expenses, but an apartment full of $20 and $ 100 bills is a tempting target for other dealers -- or any other crime figure who gets wind of it -- as well as for the law.
    
The sheer bulk of the cash is staggering. According to the Justice Department's Asset Forfeiture Office, some $109 billion in drug money is generated every year in the United States, most sold on the street in deals for small bills, mostly twenties. That’s more than 5 billion $20 bills, weighing in at a hefty 26 million pounds.
    
For traffickers, it’s a major storage and transportation headache. One laundering operation was grabbed in New York earlier this year loading $19 million in small bills onto a tractor trailer, the only vehicle big enough to carry it. And big piles of cash tend to attract attention, making life easier for the law.

“A lot of law enforcement agencies, particularly at the state and local level, are looking for very sophisticated laundering systems involving Swiss, Panamanian and Bahamian bank accounts,” says Karchmer. “But they really don't need to start out looking for the more complex systems. It the dealers are sitting on the cash longer, then cultivate informants and find out where the hoards are.”
    
While some of the money stays in the United States, at least half of it gets physically smuggled out, and that percentage may be growing. “It's becoming the method of choice,” says one Customs investigator. "It's quick, it's easy and it leaves no paper trail.”  Private planes and boats, as well as unwitting courier services, are used to get the cash to any of the dozens of nearby banking secrecy havens.
    
“Their techniques are incredibly imaginative,” says von Raab. “A lot of it is hidden in cargo leaving the United States. We have 8 million containers entering the U.S. every year, and that means that about 8 million leave, too.” Once the cash has been deposited abroad, it can easily be wired back into the drug trafficker's account in the United States.

The preferred method is simply to load the cash onto small private jets in places like Omaha, Kansas City and Des Moines and fly it quietly to offshore havens. Once off the ground, they are hard to catch. “There may be theoretical controls, but there are no practical controls on aircraft leaving the U.S.,” admits von Raab. “When we catch an aircraft leaving the United States with cash, it's usually because a lot of hard investigating has been done.”

And the money is going out in all directions. “We estimate that there are about 450 organizations trafficking in the country, including about 50 that use Hong Kong as their laundering point,” says the FBI's Binney. “The Italians use the Swiss and Luxembourg banks, and the Colombians use Aruba, the Caymans, Panama and Uruguay.”

Each banking center has its own attractions. As the major financial center for South East Asia's drug trade, Hong Kong has long been high on the laundry busters' hit list. Its tight bank secrecy laws (criminal penalties of up to $100,000 in fines and two years' imprisonment for divulging information about accounts), favorable tax policies, lack of currency controls and wealth of money changers and international trading houses have made it a natural laundering site for the heroin-smuggling Chinese gangs who feed most of the American market.

Profits from the heroin trade “go strictly to the West Coast and out,” according to Binney, and both the smuggling and laundering rings are tough to crack. The gangs are “very close-knit, almost family-run organizations,” he says. “They only deal with people they know, and they're very difficult to penetrate with informants or undercover agents.”
    
Hong Kong is also home to an informal, centuries-old international banking network known as the hundi system, also known as the "chop" system. A mainstay of Southeast Asia's marijuana smuggling rings, hundi operators arrange for cash left in one city -- say, London, where 200 such operations are thought to exist -- to be delivered anywhere else in the world, in any currency desired, for a fee of 2 or 3 percent.
    
To claim the money, the client or his agent produces a chit (or code word, or any other prearranged signal), and the deal is done. The system is not used exclusively by Asians: Brian Peter Daniels, a Hong Kong-based trafficker arrested last summer on charges of smuggling more than 70 tons of pot into the United States, reportedly used the hundi network to pay off his Thai suppliers for years.
    
Traffickers bringing drugs in from the Middle East and central Asia favor European banks. And with its august reputation as a secrecy haven and international currency center, Switzerland has drawn dirty money for decades. Somewhere between 48 billion and 62 billion foreign bank notes are exchanged there every year, most of them legitimately. Launderers love having a crowd like that to blend into. But since 1972 Bern has been happy to unlock and even seize accounts if Washington can produce solid evidence that they contain drug or bribery money, and law enforcement officials express amazement that launderers still seem to flock there.

“You would think those idiots would have caught on in 1972, when we did the treaty and the Swiss started seizing money,” says Saphos. “Switzerland's the worst place in the world to put your money.”

Switzerland's bank secrecy veils are likely to rise even higher this year, in the aftermath of a laundering scandal that toppled the country's justice minister in March. It seems that two Lebanese brothers, Barkev and Jean Magharian, had come under suspicion of laundering $1.3 billion in drug proceeds through Swiss banks and currency trading houses, and that Justice Minister Elisabeth Kopp took the unwise move of alerting her husband -- who, as it happened, was the vice chairman of one of the trading houses that was about to be investigated. Her resignation followed shortly afterward.
    

Elisabeth KoppThe Kopp scandal focused new attention on the flow of drug money through Switzerland and set off a chorus of demands for more anti-laundering legislation. Bern is now debating tighter controls on the international bank note business, as well as making negligence on the part of bank employees a crime.
    
The discussion seems to be serious: For cases involving organized crime or “considerable profit,” a five-year prison sentence and fines of up to I million Swiss francs ($585,000) are being proposed. Switzerland's banks may someday be as clean as its streets.
    
But cleaning up the world's secrecy havens may be an Augean task. The love of money being what it is, new havens spring up with depressing regularity. Many are in the Caribbean, which traffickers like because they can use them as drug transit points to the north as well, and the right officials have already been found and bribed. (Some like the Caribbean so much they stay: The Colombian mega-dealer Carlos Enrique Lehder Rivas made Norman's Cay, one of the islands in the Bahamian chain, his home and headquarters for years.) And there is rarely any local opposition: The amount of money flowing in is “absolutely staggering," according to Morley, and that money creates jobs, raises wages and does other pleasant and welcome things.
    
Offshore banks are used to hide a thousand unsavory practices, from tax evasion and commodities fraud to drugs, embezzlement and corporate kickback scams. And business is booming.  Setting up an effective and impenetrable laundering system using offshore banks is not only affordable (it can be done for as little as $10,000), it’s also absurdly easy. The first step is simply to set up a business in the United States to serve as a cover. It might be a restaurant, an insurance company, a car dealership -- it doesn’t really matter, as long as it has a bank account. And the trafficker can appoint himself anything from owner to employee to stockholder.

Once the front organization is in place, the trafficker then flies down to his preferred secrecy haven: say, Panama. He finds a Panamanian attorney (not difficult: they advertise widely in the international business press), who sets up an offshore finance company for him. The company (and its bank account) will be outfitted with all the proper papers, each with the attorney’s name as the president and nominee owner. The trafficker's name never appears in any of the company's public records.

“A typical lawyer will own literally hundreds of these things," says Morley. "I went into an attorney's office in the Turks and Caicos; in one of the rooms in the office suite there was a chair, a desk and several hundred corporate seals in packages, each on a piece of paper on the floor. There were literally hundreds of these things, lined up in rows on the floor so you could walk between them. And each one was a corporation."

Once equipped with a company and bank account in the haven, all the trafficker then needs to do is load up a small plane with his cash and have it flown to Panama City, where an obliging armored car will meet it at Omar Torrijos International Airport and take it directly to the company's bank. Once deposited, the cash vanishes behind the secrecy veil.

The money is now safe from North American authorities, who in most cases can only stamp their feet in frustration. The only step left is to get it back into the United States, fresh and clean. That’s easy too. The finance company makes out a loan (fully documented by the attorney) to the cover operation in the United States and wires the money northward. All the cover company has to do is make occasional interest payments - tax deductible, of course - on the loan. The deal, as far as anyone can tell, looks completely legitimate. And the trafficker has a bank account full of clean money.
    
This is only the simplest kind of offshore operation: Nervous traffickers can add more layers simply by shifting funds from one secret account to another. And havens are falling over one another to bring them in. A finance company can be set up in the Turks and Caicos Islands, for example, over the telephone. (The Turks and Caicos has been a friendly sort of place, trafficker-wise: Norman Saunders, the former chief minister of the small Caribbean island chain, was convicted in 1985 of drug-related bribery charges.)
    
The United States has been pressuring a number of the havens to open up accounts of suspected launderers and drug dealers. "It's a bit more difficult to set up a laundering operation than it used to be, because many of the havens have entered into agreements with the United States: either multilateral treaties or memoranda of understanding," says Morley. But accommodating countries will always be found. “As some havens fall, others rise," he says. "Panama is going the way of all flesh, as it were, but other places like the Cook Islands, Vanuatu, Nauru -- places in the Pacific you've never heard of -- are getting into this. They're trying to replicate what the Cayman Islands have done: build a new financial haven on a speck of land in the ocean."
    
Official enthusiasm in some of the havens has led, in some cases, to official corruption. In an extensive study of offshore havens conducted in 1985, the Senate's Permanent Subcommittee on Investigations found that criminal exploitation of offshore havens was flourishing, due to “government intransigence in the face of overwhelming evidence of dirty money in their banking systems."

And not just intransigence: There is, in some cases, outright collusion. In March, a federal grand jury in Boston indicted Kendal W. Nottage, a member of the Bahamian Parliament, and six others on charges that they conspired with organized crime drug dealer Salvatore Caruana to hide $5 million in drug profits and defraud the IRS. Nottage was a former Cabinet member of Prime Minister Lynden Pindling, who came under suspicion in 1983 when two of his high-level officials were arrested in a bribery sting operation connected with drug trafficking. There were charges at the time that Pindling himself was associated with fugitive financier Robert L. Vesco; the charges were dropped, although Pindling's bank accounts showed deposits of $3.5 million more than his salary between 1977 and 1983.
    
But compared with the kind of official corruption going on in Panama, the Bahamian officials look like choirboys. Blessed with a strategic location, tight bank secrecy laws and all the other legal rigmarole for hiding dirty money, Panama has been a magnet for money launderers for decades. Hundreds of international banks have branches there, and uncounted thousands of registered companies flourish. Panamanians like it that way; a 1985 congressional study found that the country's financial institutions employed 8,000 people, all of them prospering from the country's secrecy laws. Like Hong Kong, it is a place where money talks and everybody speaks the language.
    

Manuel NoriegaUnlike Hong Kong, Panama is also a place where cooperation among the government, banks and the drug underworld is, for all intents and purposes, institutionalized.  “Panama is just a prostitute when it comes to its banking system,” says von Raab in disgust. The biggest of them all is the country's leader, Noriega, who was indicted in the United States in February last year for using his official position to protect hundreds of traffickers and launderers, including members of the Medellin cartel.
    
The indictment claimed Noriega had taken more than $4.6 million in payoffs to provide airport facilities and protection; one launderer, Steven Kalish, told a congressional committee that he had bribed Noriega and his associates for help in laundering some $100 million. Noriega has rejected the indictments, claiming repeatedly that Washington was stirring up false charges in order to have an excuse for hanging on to the Panama Canal, which is scheduled to revert to ownership by Panama in 2000.
    
The indictment of Noriega frightened launderers, who began to shift their money elsewhere. But “now that Noriega is better settled, I think that a little more confidence is returning to the Panamanian system,” says von Raab. That, he implies, is due to Washington's overly delicate handling of the Panamanian. “There was one point when they were really scared that there was a lot of money in the U.S. that wasn't moving to Panama. But Noriega gave the finger to the U.S. a couple more times, we flinched and the money came back.”
    
The presence of people like Noriega makes federal investigations difficult and sometimes impossible. The big laundering busts of this decade have been immensely complicated, time-consuming and expensive. Two or three years can be spent infiltrating a laundering operation and gaining the target's trust. That has meant that the feds have had to focus on only the biggest groups, letting the smaller fish get away.

“In these kind of investigations you're talking about six or seven subpoenas and trying to get something from the Marshall Islands, and so on,” says the DEA’s Omdorff. “It's eight or 10 months of work to find out what happened.”
    
But law enforcement techniques have been advancing, and growing emphasis is being put on electronic surveillance rather than infiltration. And while each of the various federal agencies conducts its own independent investigation, more are being conducted on a joint basis without any one agency necessarily taking the lead.

“A lot of these guys will be involved in money laundering, fraud, arms, illegal aliens and cocaine smuggling,” explains Omdorff. “So DEA does the drugs, IRS does the money, INS looks at the aliens, and so on. We pool funds and work as a group.”

The more expertise that can be brought to bear, the better. The laundering operations of the next decade will be extraordinarily intricate and imaginative, and the drug agencies have been scrambling to keep one step ahead. That has meant changes in the way some of them approach the drug problem and train their agents.

“While the traffickers learn, so do we,” Omdorff says. "We're constantly evaluating our approach. And modem-day narcotics agents aren't what they used to be; now you're not just worried about going undercover and buying a gram of coke. You understand treaties, banking laws, financial information.”
    
The big busts of the past few years have made the traffickers more wary of whom they hire. “They're getting leery,” says Omdorff. “When you go undercover as a money launderer they ask you 10 zillion questions, and when they try you out they do it with $10,000 rather than $50,000.” Some are even fighting back with extensive background checks on prospective launderers. “They've started contracting with private investigation firms,” says another federal official. “We had a case in San Francisco where a dealer's investigator reported back that he thought he was dealing with drug enforcement people. It caused a lot of problems.”

But the growing complexity of the laundering operations and the entry of new people into the field has, in some ways, made it easier to bust them.

“The good thing about money laundering is that it's not a one-person operation,” says the IRS's Bruh. “And the more people they need to help them, the more vulnerable they are to us. Frequently we'll grab people for other reasons and turn them, and as part of their cooperation with us they'll tell us about things we didn't even know were going on.” The huge La Mina operation, in fact, came to light only after agents posing as launderers were told by a cartel operative that they were too slow in processing the funds. “You should learn from La Mina,” they were told. “They can launder the money in 48 hours.”
    
And with the prospect of becoming a millionaire overnight, new blood is streaming into the drug business all the time, while established traffickers work on expanding their operations.

“They're developing new networks, and they need new people all the time to help them move their money,” says Bruh. “They're greedy.”
    
For all the recent successes, U.S. agencies say they can do only so much without international cooperation. "The most important development of the past year has been the involvement of other countries in money laundering investigations," says von Raab. “This isn't a local problem; it's global.” The United States has been drawing up mutual legal assistance treaties with a number of other key countries, and most now will cooperate in drug cases. Many, however, refuse to hand over information in tax investigations.

“It's more difficult for us than for other agencies, because some other countries like the idea of being havens,” says Bruh. “Sometimes they'll give information to U.S. federal agencies with the proviso that we don't get it.”
    
Cooperation is gradually becoming institutionalized. Declaring that the world drug problem has reached "devastating proportions," a summit meeting of the so-called Group of Seven industrialized nations in mid-July called for an international task force on money laundering to be set up. The Financial Action Task Force, as it has been christened, will meet later this year in France and will produce a report on the problem by April. In Washington, officials seem pleased, if slightly impatient, with the progress. “At the last summit in Toronto, there was just a line on money laundering,” says Treasury's Martoche. “This time, there was a couple of pages.”
    
Perhaps more significantly, a December U.N. conference in Vienna adopted a Convention Against Illicit Traffic in Narcotic Drugs. Once adopted by a majority of U.N. members, it will require them to make drug-related money laundering illegal, allow authorities to confiscate drug proceeds, seize bank and commercial records and foster mutual legal assistance. The convention also would allow nations to share confiscated property and put the proceeds back into fighting drugs.


More than 70 people were  indicted in the wake of the C-Chase  stingThe importance of international cooperation was proved last October, when a two-year sting operation called C-Chase ended in the indictment of more than 70 people and, for the first time, an international financial institution: the Luxembourg-based Bank of Credit and Commerce International.
    
The ring (whose leader, Roberto Baez Alcaino, pleaded guilty July 6) was a major operation supplying clean money to the Medellin cartel and dozens of other traffickers. The sting's success was due to “the direct and significant involvement of French and British officials,” says von Raab. “To my knowledge, it was the first really identifiable case of international co-operation.”
    
Outside the United States, legislation governing money laundering is still skimpy. But that may be changing under pressure from Washington. In the so-called Kerry amendment to the Anti-Drug Abuse Act of 1988, the Treasury Department was directed to reach agreements with foreign banks to ensure that cash transactions of $10,000 or more are recorded wherever in the world they take place and that the records be made available to U.S. investigators. If, by November 1990, a country is found to have negotiated "in bad faith," the president can terminate all banking relationships with that country's financial institutions. That's a powerful threat; it would effectively put a choke hold on a country's trading relationship with the United States.

Predictably, several countries, including Canada, have protested. But the Kerry negotiations are going well, says Treasury's Martoche. “More and more people are seeing money laundering not as an American problem but as a global problem.”
    
That is especially true in Europe. Only France and Britain have legislation against money laundering, but as Latin American dealers move into the European market, interest and cooperation there have been spreading. Most observers say that the full force of the cocaine trade has yet to be felt across the Atlantic but that market conditions make it inevitable that Europe will be hit, and hit hard. “Six months ago, we had a guy negotiating for $47,000 a kilo in Toronto, while it was going for between $18,000 and $20,000 in New York,” says Omdorff. “In Europe, it's about $60,000 it kilo.”
    
The prospect of a burgeoning cocaine market in Europe has money launderers there salivating in anticipation, and American officials fear that plans to remove all controls on currency movements within the 12-nation European Community by the end of 1992 will only make matters worse.

“I'm worried about it because the Colombian cartels are excited,” says von Raab. “When those barriers drop, it's going to be the weakest-link problem. All the good money laundering laws in the world in Great Britain and France aren't going to help; they can park all their money in Germany, which is particularly obsessed with not touching the banks."
    
It is not just the Latin traffickers who are looking forward to 1992. Carlo Azeglio Ciampi, governor of the Bank of Italy, told the Italian Parliament's Anti-Mafia Commission earlier this summer that the Mafia intended to launder and invest billions in the European Community. With an estimated $75 billion in annual income (much of it from heroin, and its interest in cocaine growing), the Mafia's penetration into the Italian financial sector is already said to be enormous; one investigator has warned of a "tight alliance between money of illegal provenance and financial sectors."

Barring extreme measures, it seems unlikely that the Mafia's grip on some of the country's financial institutions can be pried off by 1992. The Italian Banking Association has asked its members to check the identities of anyone depositing or withdrawing more than 10 million lire (about $7,300), but without any strong legislation to back up the new requirements, they are unlikely to have much real effect. The U.S. Justice Department has developed a cooperative effort with the Guardia di Finanza, the investigative wing of the Italian treasury, to exchange data. But the plan, called Primo Passo, is just as its name suggests: only a first step.
    
With the predictions of a drug explosion in Europe, and a potential explosion of heroin use in the United States, no one involved in the war on drugs thinks it will ever be possible to wipe out money laundering. Whenever one operation is busted, another will come up to take its place. But the fight against the drug lords continues. “Five ‘Polar Caps’ are not going to end this problem,” says Bruh. “But at least it keeps it to a certain level of control. And if there's nothing else we're doing, at least we're seeing to it that these particular people are out of business.”

Greece's Andreas Papandreou, with Liana (l)

Within Pasok, the party Papandreou founded in 1974 and led to victory in 1981 and again in 1985, long-hidden fault lines are beginning to show. Several key figures have quit in disgust over the government's handling of banking and arms dealing scandals, and at a December meeting of the party's 140-member executive committee one in four members openly opposed Papandreou's leadership. As he heads for a messy divorce from his wife, Margaret, a respected leader of the Greek women's movement, his ratings in public opinion polls have plunged. Many suspect him of being personally involved in the unprecedented corruption that has spread through the government; at a meeting of the party's parliamentary group Jan. 14, former deputy health minister Silvia Akrita angrily accused the government of running "a nursery for parasites."

It's a widely shared opinion. "There are some people in Pasok who are gentlemen, but most have degenerated into political gangsters," says George Sekeris, head of the Foundation for Political Studies and Education in Athens. "Power has become the sole objective. It's not just a party, not just another government. Pasok gives the impression of being an organized operation aimed at the public treasury."
    
The government is sustaining body blows on an almost daily basis from a series of scandals that started to break open last fall. The most damaging centers on a young banker and wheeler-dealer named George Koskotas, a financial wunderkind whose meteoric climb to the top of Greek society ended suddenly in late October when he was indicted on charges of embezzling more than $200 million from the Bank of Crete. Koskotas, who fled the country in a private jet and is now in jail in the United States awaiting extradition to Greece, has threatened to implicate high government officials. As a parliamentary investigation deepens, evidence is surfacing that close associates of Papandreou, and perhaps the prime minister himself, may be deeply involved.
    
The Koskotas affair has captured the public imagination like nothing in recent Greek memory. It has touched people personally - almost everyone in Athens either had money in Koskotas's bank or knew someone who did - and the sheer scope of the crime is, by Greek standards, breathtaking.

“A quarter to a third of a billion dollars in a country whose legal economy is only about $42 billion," says an Athens-based diplomat. "This thing is Drexel [Burnham] Lambert, Ivan Boesky and Billy Sol Estes rolled into one ." And with all the right ingredients - a fat banker, mink-coated women, death threats, corrupt politicians, suitcases of cash passed surreptitiously in Athens hotel rooms - the papers have been having a field day.
    

George KoskotasThe first smell of impropriety appeared several years ago. The New York-raised Koskotas, 35, had returned to Greece in 1979, shortly before being indicted in the United States on charges of defrauding the Internal Revenue Service and the New York state unemployment office of $41,000. Safe in Greece, Koskotas found a job at the Bank of Crete as a mid-level manager and managed within a short time to buy up a 2 percent share of the bank. But suspicions were raised in 1984 when he suddenly and surprisingly bought majority control of the bank, reportedly for $6 million to $8 million.
    
Alarm bells quickly went off in the press. Athens's half-dozen major dailies began spreading reports that Koskotas was part of a Mafia-backed money laundering operation and demanded an investigation. But the government stalled, even when the Bank of Greece (the national central bank) was alerted by foreign banks several months later that Koskotas appeared to be involved in questionable foreign exchange transactions.
    
For the next several years, say parliamentary investigators, attempts by Demetrios Chalikias, the Bank of Greece governor, to investigate Koskotas's dealings were blocked by delaying tactics and obstructionism on the part of high-level government  officials, including Justice Minister Agamemnon Koutsogiorgas. During that time, Koskotas began assembling a media empire called Grammi Inc. that at its height included seven magazines and daily newspapers, as well as a radio station, real estate and Greece's most popular soccer team -- all paid for, investigators now say, by funds embezzled directly out of the Bank of Crete.
    
But by late last year, Koskotas's castle of sand was beginning to crumble. Worried by the growing rumors, Bank of Crete depositors began to close accounts en masse, and the banker found himself in a cash crunch. Again, say investigators, he appealed to his protectors in the government.

Says John D. Paleocrassas, a member of the parliamentary committee investigating the case, "We know that in the summer of 1988, during which Koskotas met with the prime minister at least once, large sums of money were deposited with the Bank of Crete by a dozen governmental organizations and enterprises." Olympic Airways, the Greek Telecommunications Corp., the Post Office Bank, the Bank of Attica and a number of other government controlled companies shifted some 5 billion drachmas ($35 million) from other accounts into the Bank of Crete, doubling its deposits.
    
As evidence of governmental involvement with Koskotas began to mount, so did pressure for full disclosure. In late September, he was finally forced to turn over to investigators photocopies of the documents he had used to acquire ownership of the Bank of Crete, which stated that he had $13 million in deposits with Merrill Lynch & Co. Inc. and $17 million at Irving Trust Co. in New York.
    
For the banker, it was the beginning of the end. Both banks quickly confirmed that the documents were forged, and a special commissioner was appointed to run the Bank of Crete. Within days, he said he had found evidence that Koskotas had embezzled some $235 million and asked for his indictment on multiple counts of forgery, embezzlement and fraud.
    
In a move critics say points to a judicial conspiracy, the courts gave the banker an unprecedented 11 days to prepare his response to the indictment, rather than the 48 hours specified in Greek law. The opposition, smelling a rat, was furious. Mitsotakis warned in a full session of Parliament that Koskotas would be allowed to escape.
    

The news: more scandalOn the evening of Nov. 6, Koskotas eluded a special surveillance team numbering dozens of police and left from Athens airport on a private jet owned by Argyris Saliarelis, an important Greek businessman said to have personal ties to Papandreou's wife. After flying first to Malta to pick up his family, then to Brazil before arriving in the United States, he was arrested in Massachusetts Nov. 23 on the U.S. charges pending against him and is being held while awaiting extradition hearings.
    
Koskotas's escape forced Anastassios Sehiotis, the minister of public order, and Minister of Justice Koutsogiorgas to resign. The allegations continued to grow as the Bank of Greece's Chalikias accused Koutsogiorgas of muzzling his investigation. Trying to defuse the spreading crisis, Papandreou reshuffled the government Nov. 16, but the damage was already done. Appalled at the prime minister's clumsy handling of the situation, three popular and influential Pasok figures resigned from the government.
    
While Koskotas awaits extradition, the parliamentary investigating committee has uncovered several key pieces of evidence that appear to implicate Papandreou himself, including a letter dated Oct. 27 from Koskotas to the prime minister asking him to hinder the investigation. And formal charges that involve receiving money from Koskotas were brought Jan. 31 against George Louvaris, one of the prime minister's closest friends and confidants. Investigators suspect that the money was then passed on to Papandreou. Says one member of the investigating committee, "He acted as the intermediary between Koskotas and the prime minister."
    
Papandreou denies any complicity, denouncing the entire affair as a foreign instigated conspiracy aimed at bringing down his government. Dimitris Maroudas, a close aide to the prime minister, told reporters in January that Papandreou and President Francois Mitterrand of France were the victims of an international rightwing plot "to overthrow all socialist and progressive forces in Europe," and the pro-government paper Avfiani claimed that the Koskotas scandal had been based, from beginning to end, on a CIA psychological warfare manual.

As the investigation draws in its net, few doubt that the affair will dominate the upcoming elections. But a potentially even more serious matter involving graft and illegal arms sales by two government-controlled companies has been emerging since November, when Deputy Defense Minister Stathis Yotas charged that the Hellenic Arms Industry (EVO) and the Munitions and Cartridges Co. (Pyrkal) had been involved in selling weapons to Iraq and that five top EVO officials (including its director, Stamatis Kambanis) had been involved in financial improprieties.
    
Charging that Papandreou's top economic adviser, George Katiforis, had pressured him to allow the exports, Yotas resigned in December, saying, "I refuse as a member of the government to be identified by the people as being part of a group of cheats and embezzlers of public wealth."
    

Shortly after Yotas's dramatic departure, a Dutch court imposed a $1.4 million fine on the Dutch company Muiden Chemie for smuggling gunpowder and hand grenade parts to Iran through the two Greek companies, which had provided end-use certificates. Such documents guarantee that the arms are for the use of the army and will not be reexported. But according to insiders, the Greek guarantee has been thin to the point of transparency.
    
"Until a year ago everybody could issue an end-use certificate -- I mean everybody," says a prominent international arms dealer based in Athens. "If you went to an assistant to the minister of defense and he wanted to make some money, he'd just take a piece of paper, sign it and stamp it. And he'd have made, say, $100,000."

With an official investigation now under way, Hellenic Arms Industry officials contacted by Insight refused to comment on the charges. But the Athens arms dealer says the company played "a significant role" in illegal arms trading through Greece. "They are a government-controlled company and have been issuing their own EUCs all along. They also have a factory down in Aigion, with its own ports and customs officials, whom they can manipulate; they have been there for years and have become part of the game. So, they can bring their own vessels into port to load or unload whatever they want. They're beyond control."

The corruption extends into the private sector as well. Greece's only private arms maker, Hellenic Explosives and Ammunition Co., or Elviemek, was sold in 1984 to a party who "is definitely a front man for the South Africans," says the arms dealer, who knew the previous owner well. Pretoria reportedly began buying shares of the company in 1977, when the United Nations imposed an arms embargo against South Africa, and has been using Elviemek to buy technology and explosives, both for its own use and to trade with h-an for oil.
    
With these and dozens of smaller scandals breaking around his head, Papandreou's political survival past June depends more than ever on how well he can manipulate the election. Many think he will start a counterattack against New Democracy soon, accusing the party of corruption of its own. Some suspect he may cook up a crisis in the Aegean Sea to focus Greek anxieties on traditional enemy Turkey or revive the kind of anti-American rhetoric that has served him well in the past. Others suggest he might even stage a phony military coup attempt as an excuse for suspending the election.
    
But the prime minister's main advantage over his opponents lies in the fact that he is entitled under the constitution to choose the next electoral system, even to the extent of dividing the country into any number of electoral districts, each with its own rules. Pasok ran the last election on a system of "reinforced" proportional representation, which discriminates against smaller parties and gives an advantage to the front-runners. Four years ago, that made sense for Pasok - it holds 52 percent of the seats in Parliament even though it took only 46 percent of the vote. But with New Democracy yards ahead of Pasok in the polls, using the same system now would give Mitsotakis a powerful majority.
    

Marching against Pasok in Athens That is something that Papandreou and other leaders on the left intend to avoid at all costs. The small parties of the non-Pasok left have formed a pre-electoral coalition and are lobbying for a purer form of representation that would give each party seats in the Parliament precisely in proportion to the number of votes it receives. Popular support for such a system is strong: Close to 10,000 people from almost every political party mounted a protest march through the streets of Athens Jan. 26, demanding more democratic representation.

If Papandreou accedes to that demand, it would hurt his own party but increase the overall strength of the left, positioning him as the leader of a coalition government. With Pasok in disgrace, that may be the best he can hope for, but there is some question as to whether Greece's other leftwing parties would play along. They have been distancing themselves from Pasok as the scandals have spread, and the largest the Communist Party of Greece, or KKE - says flatly that it will not support Papandreou.
    
"There's a real clash between Pasok and the Communists," agrees Theodore Christodoulidis, a professor at the Panteios School of Political Science in Athens. "The KKE sees this election as the opportunity to promote the image of a party which can come to office through parliamentary methods, not the image of a revolutionary party. And I think they could reach up to 17 percent of the vote."

Some in the party see Pasok disintegrating even before the elections. “As soon as the unification of the left is completed, most of the people in Pasok will come to this new movement," says Dimitris Dessylas, a Communist Party spokesman and member of the European Parliament. "They're not going to New Democracy."
    
Despite its protests, it seems unlikely that the Communist Party would not take advantage of the chance to play a powerful and unprecedented role in the government. Analysts suggest that the party would probably support Pasok in exchange for some key objectives: kicking U.S. military bases out of Greece, for example, or halting extradition of terrorists. Even if Pasok can retain power in such a coalition, Papandreou's leadership is anything but assured.

"I think there would be pressure to give support to a coalition government on certain conditions. Certainly one would be that Papandreou not be prime minister," says Gerassimos Arsenis, who served as minister of the economy under Papandreou before leaving, in 1985, to form the Greek Socialist Party.
    
But dumping Papandreou may be easier said than done. The structure of Greek political parties makes it extremely difficult to mount a successful revolt against the leader, and many observers think that Pasok, deprived of its charismatic founder, would simply fall apart. Formed as a loose coalition of leftist parties, united only in their opposition to the fight, Pasok never developed a firm, unifying ideology.

"Papandreou just attached his slogans and projected policies to the various groups that were of interest to him. That explains why his policies were so contradictory," says Sekeris of the Foundation for Political Studies and Education. Rather than develop a coherent outlook, the emerging party counted instead on its leader's extraordinary personal magnetism.

"Papandreou is Pasok," says Christodoulidis. "Without him, it would be 10 or 12 small political factions without a leader." The New Democracy party, meanwhile, has grown in popularity. And since Pasok's record has so seriously undermined support for socialism in Greece, says Arsenis, if Papandreou were to step down "the anti-right feeling wouldn't be strong enough to hold the segments of the party together."
    
Moreover, it is unclear who would succeed him if, under the pressures of health, scandal or politicking in his own party, he did step down. And the costs of speaking up against the leader are high. "You don't really see any personality strong enough to succeed Papandreou," says Miltiadis Evert, the mayor of Athens and a member of New Democracy. "They've created an atmosphere where every deputy who wants to speak up honestly is branded a traitor."
    

Constantine Mitsotakis, head of the New Democracy PartyThe most popular party in Greece right now, and Pasok's main adversary in the June elections, is the broad-based, center-right New Democracy headed by Mitsotakis. Promising to reestablish democracy, clean government and economic pragmatism, Mitsotakis has been spearheading the multiparty attack against Pasok, and his party now leads Pasok by 10 to 20 percentage points in the polls. But for all its strengths, New Democracy has not carved out a role for itself as an entirely credible alternative. "The opposition continues to walk along the traditional path," says one analyst. "It is still the same old party that was, in effect, kicked out in 1981."
    
Others worry that Mitsotakis himself remains a liability. Brought in to head the party in 1981, he is felt to be the only politician in Greece tough enough to take on Papandreou and win. Nevertheless, he has an image problem. He’s considered to be one of the main architects in a splintering of the Center Union government of Georgios Papandreou that led the way to the 1967 military junta. Mitsotakis's apostasy left an impression of dishonor that lingers in many Greek minds. "Everybody recognizes that he's smart, but people just don't trust him," says a Western diplomat.
    
Some analysts say that a long period of political instability lies ahead no matter what government emerges in June. The new government will face a second election in March 1990, when it has to select a president to succeed Christos Sartzetakis. That may be difficult with a coalition government: 180 votes in Parliament are needed to elect a president, and Pasok, even with its majority, barely managed to muster that number in the last go-around, in 1985. If it proves impossible, the government will be forced to call new elections.

"We're really talking about an electoral period that will last for more than another year and may lead to the emergence of a new generation of leadership to replace both Papandreou and Mitsotakis," says one diplomat. "This could be the last hurrah for both of them."

Mao Zedong must be turning over in his casket.

Let's hear it for capitalismTwo blocks away from his mausoleum in Tiananmen Square, the new McDonald's is churning out Big Macs and strawberry shakes, competing for China's fast-food dollar with the Kentucky Fried Chicken at the other end of the square. Smartly dressed Beijingers finger wads of cash as they inspect Sony video cameras in an electronics store, the streets are clogged with Nissans and Toyotas full of foreign investors, and gangly yellow construction cranes loom over construction sites, where ancient shop-filled alleys are being demolished to make room for high-rise office buildings and five-star hotels.

Workers' paradise, or quick-buck boom town? Welcome to the new China. The giant portrait of Mao that hangs on Tiananmen Gate still gazes sternly over the Great Hall of the People and the Monument to the People's Heroes. But it's also a witness to the most profound revolution China has seen since the Communist Party took control of the country in 1949. As Beijing's bureaucrats peel away the regulations that have strangled the economy for decades, China is lurching toward a self-styled "socialist market economy" that could turn it into the global economic success story of the 1990s. Forget the drab slogans promulgated only a few years ago -- "Stability Above All" and "Hard Work and Plain Living." From Beijing to Guangzhou, the word is out from senior leader Deng Xiaoping himself: "To get rich is glorious."

China's rush to prosperity isn't limited to Beijing, either, or to the cities in the South that feed off Hong Kong's nearby wealth. Shanghai is growing so fast that planners are laying the groundwork for a whole new metropolis right across the Huangpu River. Rural areas are being developed into profitable industrial townships and private enterprises are springing up throughout the country -- 500,000 in 1992 alone. China is breeding its first crop of millionaires, and a generation of small-scale quiyejia -- entrepreneurs -- is eagerly testing the waters. "Everybody wants to do this," says Xia Deming, a 39-year-old former cement worker who quit his job last year to open the tiny Fragrant House noodle shop near Shanghai. "I'm making money!"

In its long march to riches, however, China still has a ways to go. There may be Benetton shops in Guangzhou and expense-account karaoke bars in Shanghai, but China's per capita gross national product is still only about $370 a year. Since the early 1980s, however, the economy has been growing at an average of 8.6 percent a year, spearheaded by the provinces along the coast. And with a domestic market of 1.1 billion people, a well-educated work force, a tradition of entrepreneurship and access to capital from Chinese living in Taiwan, Hong Kong and elsewhere, the country is poised to take off.

"China isn't going to replace Japan as the economic leader in the area for a long time," says Frank Martin, president of the American Chamber of Commerce in Hong Kong. "But the fact is, China is the fastest-growing economy in the region -- if not in the world."

The fuel driving this economic renaissance is a package of reforms designed to let the economy respond to market forces, without giving up too much central government control. China has been flirting with a free economy since 1979, when it loosened restrictions on agricultural production, allowed people to set up small businesses and established "special economic zones" along the coast. The economy boomed during the 1980s, despite a slowdown after what the Chinese refer to as "the events" of 1989 in Tiananmen Square. But the shift to a market economy only really gained momentum a year ago, when Deng Xiaoping made a well-publicized trip to prosperous Guangdong province and praised what he saw.

Armed with Deng's blessing, reformists in the government were able to cement their views at the 14th Communist Party Conference in October, when General Secretary Jiang Zemin proclaimed that a socialist market economy is now officially the government's goal. "Reform is also a revolution, a revolution to liberate the productive forces," he said. "It is the only way to modernize China." The new plan is "no minor patching up of the economic structure," he declaimed, "but a fundamental restructuring of the economy."

Fundamental may be putting it strongly -- Beijing's slow-moving bureaucracy is still toeing the cold waters of capitalism before jumping in, and Jiang didn't divulge details of the plan. But something is happening.

The government says it wants to replace centralized planning with free markets for goods, services, labor, capital and real estate, while maintaining a strong state sector. It's lifting price controls on a number of goods and services, slashing subsidies on basics like eggs and milk and freeing prices for raw materials for industry. Rents on state-owned housing are being raised and publicly owned buildings are being sold off. Two stock exchanges have been set up since 1990 to help channel some of China's private savings into business investment. State-owned industries will continue to be the backbone of the economy (although they too are being nudged gently toward profitability), and other kinds of ownership -- joint ventures with foreign companies, collectively owned enterprises, shareholding companies and private businesses -- have been given the green light.

"What we're trying to do," says Chen Li, an economist with the State Commission for Restructuring the Economic Systems, "is to form a modern economy with a capital market mechanism at its core. We want a system that is flexible, well-regulated and efficient'"

That sounds reasonable, but it won't be easy. China's banking and legal systems are still woefully primitive, communications are iffy and reliable transportation is a matter of cajolery, good luck and prayer. The state-owned behemoths are happy living in the past and have enough clout to trample on reformers who threaten their existence. Moreover, authority over economic and fiscal policies is often disputed between local and central governments, giving a patchwork look to what are supposed to be uniform national reforms. It's also difficult to break the "iron rice bowl" -- the Chinese system of guaranteed employment -- since there's no unemployment system or other social safety net, and only a very rudimentary way for workers to find out about job openings.

But even with these drawbacks, Beijing prefers its approach over a more radical and risky leap toward a free market. "In a country like China, economic reform can only be brought about in a socially stable environment," says economist Chen, noting (as many government economists are fond of doing) that the former Soviet Union has degenerated into an economic basket case by trying to do too much, too fast.

China is looking to its rapidly industrializing East Asian neighbors, which are growing at double-digit rates, and it is these countries that Beijing takes as its model. In Singapore, Taiwan, South Korea, Malaysia and Thailand, economic booms were begun and sustained long before democracy became a reality.

Some of these market-friendly governments are still not fully democratic. So even as it changes direction, the government wants to keep a tight grip on the reins.  As a sign in the tiny village of Yao Tou in southern China puts it, "The Party cadre will help the people to become rich!"

Getting the economy going, however, will mean performing liposuction on the sprawling, state-owned companies that account for half of industrial output and about 60 percent of industrial employment. About two-thirds of them lose money, and profits from the successful ones are plowed into the losers. "The key to change in the Chinese economy is reforming the state-owned enterprises," says Yuan Enzhen, the director of the Institute of Economics at Shanghai's Academy of Social Sciences. "They need to be turned into fully independent production units, with full power and full autonomy."

That's unlikely to happen soon. Despite huge stockpiles of unwanted goods, state-owned factories continue to churn them out, because to stop production would mean angering workers, upsetting suppliers who have to keep their state-owned factories running and putting pressure on politicians. There are 10 million warehoused televisions in China, for example, yet state factories continue to produce twice as many as they can sell, according to the State Statistical Bureau.

So it's the country's 14.7 million private companies that, despite accounting for only about 10 percent of China's GNP, are setting the pace and style for change. Most of them are small shops and restaurants, with a few consulting, advertising and construction firms, and they tend to be family-owned and operated. "Joint ventures and privately owned companies are doing much better than the state-owned companies," says Yuan. "Their output has been growing by anywhere from 30 to 50 percent a year, since they're not bound by the traditional customs in economic management. They've broken with the past."

The private companies tend to be nimble and quicker to take advantage of opportunities than their publicly owned competitors (officials in some rural areas are even reported to have closed down private companies when they became too competitive with local state-owned enterprises). "It isn't tough for small companies to compete with the big, state-owned enterprises, because the small companies are filled with vitality," says Yuan. "The big companies are like dead fish, and the small ones like living fish. So the small fish are nibbling away at the big ones."

Nowhere is the future of China more dramatically illustrated than in the "special economic zones" in Shanghai and the southern province of Guangdong, set up since 1979 to allow them to move "one step ahead" in market reforms.

As an experiment, the zones have succeeded beyond anyone's dreams, freeing up small entrepreneurs and encouraging foreign investment. From one of the country's poorest provinces, Guangdong has developed into the most open, thriving economy in China, with an annual growth rate of about 12 percent. In less than a decade, it has transformed itself from a primarily agricultural economy into China's hottest area for industrial manufacturing, where workers can earn more than $100 a month, three times the average wage in China, often working for small private companies or joint ventures.

With good natural resources, proximity to Hong Kong, a well-educated population of about 70 million (almost as many people as in South Korea, Taiwan, Singapore and Hong Kong combined) and a combined gross domestic product of close to $400 billion, Guangdong is making a serious bid to be China's new economic center.

"In Guangdong they have a saying: 'Let the sheep roam freely.' But in most parts of China, the sheep are encircled," says Shanghai economist Yuan.

Hong Kong: the model?The signs are evident on the streets of the capital, Guangzhou, where Mao jackets and party slogans are comical rarities: Western clothes and Sony Walkmans are the norm. As many motorcycles as bicycles careen through the streets, and many buildings sprout satellite dishes pointing southeast toward Hong Kong. In fact, there's a sort of love affair going on between Hong Kong and Guangzhou, with money flowing in to build factories and develop infrastructure. Hong Kong developer Gordon Wu, for example, is building a network of roads, bridges and tunnels throughout the province, as well as a superhighway that will cut driving time between the two cities from seven hours to one.

If Guangzhou is the boom city of the South, Shanghai is its counterpart in the North. The city where China's Communist Party was founded in 1921 is now the country's most prosperous and has become its preeminent industrial and trade center; about half of China's exports pass through the city's port. All that has fueled a rise in Shanghai's output of 13 percent annually over the past decade, and the boom is continuing; in 1992 the economy shot up 23 percent.

Shanghai's wealth is apparent immediately, from the fashionable clothes sported by almost everyone to the miles of expensive camera shops, restaurants, department stores and art galleries along Nanjing Road in the heart of the city The old European banks and trading houses along the Bund still look out over the Huang-pu River, but the park there (one of the city's landmarks) has been demolished to make room for a 10-lane superhighway. New glass-and-steel office buildings are rising up over the old hutongs, or shopping streets, which have become massive, immovable traffic jams -- it can take hours to get from one side of the city to the other, even late at night.

Officials in Beijing talk about Shanghai as the head of the new Chinese economic dragon, funneling exports out from the inner provinces and drawing in foreign investment. With its strong industrial base, well-trained work force and superb location, Shanghai is attracting foreign investors in droves.

"There's a real boom going on now," says Xia Zhongguang, a director of the Shanghai Foreign Investment Commission. "From January through October, we had 1,576 projects worth about $2.5 billion. That's brought our total up to 2,853 projects worth $5.8 billion -- a big leap. And the reason is that we changed a number of our regulations this year to extend the field to foreigners. In the past, we didn't allow foreigners to invest in services, like banking, real estate projects, consulting companies, insurance, areas like that. But in 1992 we said, okay. And the second reason is that we changed export policies. If foreigners invest in high-tech areas, they can sell most of their products in the domestic market, rather than exporting them."

The only problem is, Shanghai is already bursting at the seams and could strangle itself on its own prosperity. To keep that from happening, a massive new building project is under way to expand the city over to the east side of the Huang-pu River, into a 350-square-kilometer region known as the Pudong Economic Development Area.

If the government gets its way, Pudong will be China's most spectacular showcase for foreign investment by the end of the decade. "This is a gigantic project! It's going to stretch well into the next century," says Zhang Puxian, a director of the Pudong Development Office. There are plans for a new port that will raise Shanghai's capacity by 50 percent, a free trade zone, a financial district, a special "silicon valley" to promote the computer industry, and new residential areas for foreign businessmen, complete with schools, golf courses, karaoke bars and even an opera house. Some 2,500 new companies are planned for the area, as well as a Japanese-funded shopping mall designed to be the largest in Asia. Unlike in most parts of the country, foreigners will be allowed to set up retail and service companies in the free trade zone, and Pudong has already attracted companies such as Bank of America and Citibank.

But so far, Pudong looks like nothing more than the world's biggest -- and loneliest -- construction site. Giant billboards showing planned office buildings line the streets, but most of the lots they front are empty. "We'd like to see all this become like Manhattan," says Zhang, waving his hand across a dusty panorama of crumbling, single-story shops and dilapidated shacks whose tin roofs are weighted down with stones to keep them from blowing away. Down the empty street, a small group of men stands around a truck with a flat tire while a woman squats on her haunches on the pavement washing clothes in a red plastic pan. "This," says Zhang, beaming confidently, "is going to be the next Fifth Avenue."

Drop into the lobby of any of China's new five-star hotels and you're likely to see more briefcases than tourists' fanny packs -- the invasion of the foreign investors is on. That's fine with the bureaucrats in Beijing, who want to bring China fully into the world economy, and they've been pushing for the country to follow international trade norms and rejoin the General Agreement on Tariffs and Trade, the world trade body.

The opening is already bearing fruit: China's foreign trade grew by 20 percent in the first 10 months of 1992, to $124.8 billion, and investment is picking up after a lull following the 1989 massacre; it reached $5 billion last year. Enthusiasm is high: In its most recent survey of business, the American Chamber of Commerce in Hong Kong found that 93 percent of the respondents were either "very favorable" or "favorable" on the five-year investment outlook for China. Most of the money is still coming from Hong Kong and Taiwan (Taiwanese aren't legally allowed to invest, but they do so by setting up front corporations in Hong Kong), and primarily it's been going into low-tech, re-export industries such as textiles, which thrive on China's low wages and cheap raw materials.

But in an attempt to draw in higher levels of technology, Beijing has been offering tax breaks and access to the domestic market for investors who want to set up sophisticated manufacturing plants. Companies are eligible for tax breaks if they invest in high-technology industries.

The government, say investors, is ready to bend over backward to form joint ventures with foreign companies that will help upgrade its technological infrastructure, providing both funding and flexibility. Moreover, says Thomas C. Balch, managing director of Texas Instruments in Hong Kong, "there's an absolutely excellent pool of qualified technical people, which you don't have in some other Asian countries. The Chinese value education very highly, and you can get cost-effective, highly talented people to work for you. We could hire the equivalent of someone who is a professor in electrical engineering at one of the universities, have him work for us as an engineer or technical marketing person or applications engineer, and that person would cost us about $2,500 a year, And that's probably overpaying them!"

It's still not easy, though. Foreign companies are forbidden to own land and can only lease real estate for 30- to 50-year stretches. Foreign languages are not widely spoken, putting American, Japanese and European investors at a disadvantage. "I can recite the whole litany of complaints that we hear regularly," says the Chamber of Commerce's Martin. "Inadequate electricity and transportation, raw material bottlenecks and inadequate legal, accounting and regulatory structures. But things are improving, and the paper chase is getting easier."

Cultural differences create problems as well. "They don't understand the concept of paying on time," complains an American businessman running a joint-venture manufacturing company outside of Beijing. "It's been a real problem for us."

Even Chinese businessmen from Hong Kong and Taiwan don't always have a smooth time. "It's not easy to do business here, even for us," says the head of a large Taiwanese textile company, picking his way through a crab dinner at the Peace Hotel in Shanghai. "The political climate is unpredictable, and the bureaucracy is impenetrable. Chinese businessmen are very bright, and there are good opportunities here, but there's too much obstruction from the government."

Problems can often be smoothed over by forming a joint venture with a Chinese corporation, or hiring talented middlemen. Qu Jiadong, a 35-year-old native of Beijing and general manager of Electronic Data Systems Ltd. in Beijing, has spent the past seven years working for foreign companies and has seen big changes take place since then. A key hurdle for foreign companies, he says, is that they don't know how to manage Chinese workers. So his job is to walk the fine line between differing work cultures. "I have to make myself accepted by both sides," he says. "If you can't meet the government regulations, or if you can't understand Chinese culture, then you'll fail."

But for those who make it, the rewards are high. "We're just a small operation in China," says Qu. "But the computer business is one of the most profitable and competitive in China. We've been growing at a rate of 50 percent a year, and we can probably maintain 30 percent annual growth over the next few years."

And as might be expected, the new foreign presence is having its own effects on Chinese business culture. "At first, many Chinese were concerned about foreigners investing here -- including me!" explains Xia of the Shanghai Foreign Investment Commission. "But then they see the benefits. When Coca-Cola came here, for example, people complained that we didn't need another company making drinks. There were Chinese companies that sold drinks like that, but the bottles would often explode -- you'd hear stories about it all the time. But since Coca-Cola came in, the companies were forced to improve their products -- and you never hear about exploding bottles anymore."

Will China remain free of soda bombs waiting to explode? Most people in China feel that the genie of reform is out of the bottle, and that there's no putting it back. There are still geriatric hard-liners in the government, but they're being replaced with a new generation of leaders who are experienced in dealing with the capitalist world and its key economic institutions. Deng's son Deng Zhifang, for example, who studied at the University of Rochester, now is an assistant general manager at China International Trust and Investment Corp., the country's main investment company.

But reformist waves have come before, only to be swept away in a reactionary backlash, and there's the possibility that rapid economic growth could destabilize the country. With hundreds of millions of people thought to be unemployed or underemployed, and growing inequities of income, the possibility of social unrest remains real. There are other pitfalls, as well: China has threatened to invade Taiwan if it shows too much independence, and relations between Hong Kong and Beijing are at their rockiest in years.

But for most Chinese, the future is clear. "We're moving ahead carefully," says Chen of the economic systems commission. "There are a lot of challenges. But we're not going back."

SIDEBAR:  At McDonald's, Capitalism with the Works

If you've weathered the two-hour lines at Mao's tomb and caught a cold trying to catch a cab in Tiananmen Square in the rain and breathed so much Beijing smog that you'll be tasting it in the back of your mouth for a week, don't despair -- you deserve a break today, and you can get it.

Just two blocks from the Forbidden City, a brand-new two-story McDonald's has risen up to bring hope, french fries and Chicken McNuggets to the Chinese masses. With a menu identical to that of its parent in the U.S. -- and prices about the same, too -- the Beijing McDonald's serves roughly 10,000 devotees a day, making it a fixture on any economic map of the new China.

"China is a huge market!" says Tim Lai, the ebullient managing director of the 750-seat restaurant, who literally wriggles with excitement as he talks, Carl Saganl-ike, about the future. "There are millions and millions and millions of people here! So McDonald's must be here too!"

Most joint ventures between East and West have been reasonably successful, but McDonald's could be the mother joint venture of them all. While it took the company several years of slogging through red tape before it could sling its first burger, Lai says that the government partner of McDonald's, the Beijing Agriculture Industry Commerce Department, has smoothed the path. "They totally support us," he says. "Really! They support us because they know we're a good company, we're honest, and if we have any problem we tell them."

The company actually has six joint ventures up and running in China, to provide the flagship store with a reliable source for everything from strawberries for the milkshakes to potatoes for the french fries (the seeds were flown in from Boise, Idaho, to get just the right flavor).

Lai says plans are in the works to open two golden arches this year in Shanghai and in Guangzhou, several more in Beijing after that, and ... well, it's a big, hungry country.

"Many other companies have come here to learn from us -- even people from the government," says Lai, who was born in China but raised in Hong Kong, and worked his way up from cook to manager at a McDonald's in Taiwan before being tapped to bring Big Macs -- and a gung-ho work ethic -- to a country still swamped in communist-era torpor.

"They ask us about management, how to motivate people, efficiency, why is morale so high, how do you control your quality," he says. "They want to know why people here work so hard! And the answer is that we treat our people well. We take good care of them."

For that reason, jobs that most Americans over the age of 19 shun like poison are highly prized in China: a recent ad in Shanghai brought 30,000 responses. Counter workers make only about 36 cents an hour, but that's better than the average hourly wage in the service sector, and there hasn't been any employee turnover since the restaurant opened in April.

Lai insists that he is allowed to run things the way he wants to, without undue official interference.

"There are restrictions, but not big restrictions, and the government is flexible," he says. "For example, when we started, it was illegal to hire part-time workers in China. We kept asking for special permission, and finally they let us try it with a limited number of people. And when they saw how successful it was, they opened up the policy to allow people to work part-time -- for all of China!

"In China," he says, "nothing is possible, and nothing is impossible."

But not everyone is convinced that the arrival of Big Macs in a country renowned for its extraordinary cuisine is a good thing. "You eat it, and you feel stuffed," says Zheng Hong, a sophisticated young Beijinger. "And that's about it."


SIDEBAR:  Taking Stock of the Gains and the Risks

The floor of the Shanghai Securities Exchange, to anyone who's ever seen Wall Street in action, is a picture of calm bordering on profound slumber. Set up in December 1990 in the ballroom of the old Astor Hotel, the exchange is a stately but patched-together sort of place: Below the marble columns and balconies that ring the room, brokers dressed in red tunics chat quietly in cramped plywood cubicles, armed with telephones that rarely ring, staring dully into the huge red and yellow display screen that lists the 32 stocks Shanghai has on offer and waiting for lunchtime.

But the quiet belies a market that, over the past year, has been among the world's most volatile. And so pent-up is the demand for investment opportunities that the country's two fledging exchanges have seen riots break out over access to new stock issues. Violence erupted last August in the southern city of Shenzhen, home of the other exchange, when hundreds of thousands of would-be investors lined up for a chance to buy into a rare initial stock offering. When rumors spread that officials were hoarding the limited number of application forms for themselves, the crowd went wild; two days of pandemonium swept the city before order was restored. The head of the exchange hurriedly promised to devise a more sensible way to inject new stock into the market, and plans were drawn up for a regulatory China Securities Commission to make sure the process stayed honest.

But the riots underscored just how desperate the Chinese are for ways to invest their money. Both the Shenzhen and Shanghai exchanges were set up for the same reason: to attract some of the estimated $200 billion stashed away in bank accounts and under mattresses and funnel it to the business community.

Despite the country's average hourly wage of 24 cents, the cost of living is low and many people have accumulated hefty savings. And while they can earn 6.9 percent interest with the equivalent of a three-year CD, an inflation rate as high as 12 percent has made any other available investment look tempting. That's brought about 750,000 small and inexperienced investors into the market, and they own about 80 percent of the available stock.

"People have come to realize that they can make a lot of money by investing in the stock market, rather than in their bank deposits," says Wang Huizhong, an economist with the Shanghai Securities Exchange. "But they're also becoming aware of the risk involved."

But that awareness didn't really hit until last spring. Until then, authorities had kept a lid on how far up or down share prices were allowed to move, rather than letting market forces determine the price. When the restrictions were lifted in May, prices rocketed upward. As eager investors poured in, the market leapt from 600 points to about 1400 before the fever broke, and the index began a nose-dive to its current level, around 400.

That has made investors wary and dampened foreign interest as well. Of the Shanghai exchange's 32 stocks, 23 (known as A shares) are reserved for domestic investors, and the other nine (known as B shares) are available to foreigners. Despite China's allure as a hot economic growth spot, however, brokers say there's no urgent rush to buy. Even though most of the shares are trading well below their initial offering prices, most are selling at a price-equity ratio of between 37 and 40 -- two or three times as high as most U.S. stocks. And the market is unpredictable. The first B share, for example, Shanghai Vacuum Electric Device Co., was issued last January at $71.19 a share. After shooting up to $100 a share in May, it started to plummet and was recently selling for about $48.

How fast China will move from Mao to the Dow is an unpredictable as the market, but exchange officials, at least, are bullish. "We're planning on building a new securities hall in Pudong, which will be competed in three or four years," says Wang. With a seating capacity of more than 2,000 and about 5,000 square yards of floor space, the new exchange will be the largest financial center in the Asian Pacific region. "By that time," he promises, "the market will be in full swing."


SIDEBAR:  Exporters Get the Hang of Fair Trade

"The Latest! Truly Different" booms the sign next to the He-Ne Acupuncture Treatment, a device that looks like a cross between a waffle iron and two Captain Marvel plastic ray guns. "Let Mr. Tang Tell You the Secret!"

Mr. Tang was unavailable for comment, having disappeared somewhere into the million square feet of floor space devoted to the Chinese Export Commodities Fair in Guangzhou. Twice a year since 1956, China has been marketing its export products to the world through these fairs, which bring buyers and sellers together to haggle over a bewildering array of goods.

There are electric hydro-treaters (for preventing and killing algae) and Spanish language typewriters, black-and-white televisions with rabbit ears, sniper rifles and elaborate jade carvings, hip flasks, fishing rods, toy pandas that do back flips, tiny violins in tiny cases, shoulder-high rock fountains spewing steaming water, disposable acupuncture needles, antique silk paintings, tractors -- a cornucopia of treasure, junk and everything in between.

And next to every display a salesman hovers, ready to take orders.

"We get 40,000 to 50,000 people at every fair, from 130 different countries," says Lu Ruguang, the fair's deputy secretary-general. "And we do about $12 billion worth of business every year. That's about a fifth of China's total exports."

Almost every sector of Chinese light industry is represented here, and the company representatives are on the front lines of China's attempt to bring itself into the global economy. "It's not easy to sell to foreign companies -- they're very demanding," says Liu Zhi Gang, general manager of the Shandong Machinery and Equipment Important and Export Co. "It's a painstaking job. We've got to understand the new clients, to develop friendships; then we can do business."

But Liu, like other managers of state-owned export companies, has been facing even tougher challenges since October, when Beijing decided for the first time to allow private companies to export without government interference.

That's expected to boost export earnings, but also force previously coddled exporters to become more competitive.

"In the past, we were a state-owned corporation," says Chen Jian An, manager of the Zhejiang Native Produce and Animal By-products Import and Export Co., which does about $100 million a year in export sales. "We got a subsidy and we had special privileges to export certain goods. But we don't get a subsidy anymore, and it's getting more and more free -- the government has gotten rid of the regulations, so almost everybody has the equal right to export. And the competition is getting quite tough; the price goes down, and we have to be very efficient. It's hard, but it's good for China. People have to work harder."

Leaning against a wall draped with Christmas decorations, candles, down jackets and wool sweaters destined for Europe and Japan, Chen says that China's opening to the West has already produced major changes.

"Producers are getting better at understanding what the market needs," he says. "In the past, they just sold whatever they produced. Now, they sell what the customers order. And people used to worry about foreign customers' demands, on things like quick shipment of orders and settling claims. But now they're used to them."

As far as Chen is concerned, the reforms are worth the trouble, especially considering the situation in other developing economies. "I just got back from Russia, Poland and Czechoslovakia," he says. "It's very difficult to sell there. It's terrible! People have no money!"


SIDEBAR: Fueling Consumer Fever

One of the most weirdly fascinating places in China is the Qingping food market in Guangzhou, a warren of dark, narrow alleys crammed with bags of dried sea horses, flattened centipedes, white tree fungus, preserved black beetles and other delicacies.

There are trays of deep=fried caterpillars spilling over onto cages packed with live pigs, kittens, hedgehogs, pheasants and rats, all plump and ready for the pot.

There are vendors selling fish heads and bear paws, pressed lizards and huge blue crabs, live eels and complacent turtles. And the snake sellers will skin your selection for you, pluck out its gall bladder and put the still-squirming thing in a clear plastic bag to carry home.

But to see the modern China, stroll a few blocks east along the Pearl River to the Nanfang Department Store on Yanjiang Road. Five floors of consumer fever run wild, Nanfang is the Macy's of southern China. From the casks of Remy Martin by the front door to the Chinese-made Tian Ying karaoke machines ($1,100, and there's a demonstration model on every floor), the store is a virtual temple to China's new religion of capitalism.

To the piped-in sounds of Elton, John and Paul Simon, shoppers pick over microwave ovens, Mr. Coffee machines, Panasonic answering machines, Nintendo games, Sony laser disc players, black rayon Raiders jackets, neon art (as tacky there as it is in America), 7-foot-tall Chinese grandfather clocks -- just about anything is available, including pictures of the Hong Kong skyline at night; they light up when you plug them in.

To Western eyes, there's a likable chaos to the place. Green-shirted saleswoman add up purchases on abacuses, even in the section where calculators are sold. Hearing aids are sold in the musical instruments department and wheelchairs are displayed in the sports section. And the selling is aggressive: "We sell many!" shouts a petite saleswoman bearing an electric hand-held vibrator, as she mounts a sneak attack on a Western journalist's shoulder. "Many many many many!"

The crowds in Nanfang reflect just how ferocious demand is for quality consumer goods in China. Retail sales are surging, driven by growth in the coastal cities; at about $173 billion in 1991, they were five times as high as in 1978, and are growing at about 14.5 percent a year, according to government statistics. "People have money, and they want to spend it," says Yuan Enzhen, head economist at the Shanghai Academy of Social Sciences. "They don't want to wait. They're tired of waiting."

SIDEBAR:  Freedoms Right on Target for Shooters

In China these days, everybody wants t be in on the ground floor of capitalism -- even the Communist Party.  Various branches of officialdom have been dreaming up clever ways to bring in a little extra cash, by charging for services, setting up corporate subsidiaries and even getting directly into the retail business. 

The Ministry of Public Security, for example, has opened a shop in Beijing that sells handcuffs, electric cattle prods and other useful hardware, and the army's General Staff Department owns part of the luxurious Palace Hotel, one of the most elegant -- and expensive -- in the country.

It's the military, in fact, that has taken the most advantage of the new freedoms. Since 1987 it has opened up shooting ranges in six parts of the country, letting would-be Rambos and jaded tourists fire off serious weaponry for as long as their ears and wallets can tolerate it. At the China North International Shooting Gallery outside of Beijing, for example, visitors can pick from more than 30 kinds of army-owned weapons, ranging from Steyr submachine guns, assault rifles, M-1 carbines and 7.62mm light machine guns (at about $1 a bullet) to mortars (about $32) and shoulder-held rocket launchers (a little over $100 a pop).

There's even an antiaircraft gun aimed at what appears to be a section of the Great Wall -- $2 a bullet, 10-bullet minimum.

"We get about 40,000 customers a year," says Zhang Lian Xiao, the manager of the range.  "Most are from China, but about a third are foreigners. The Chinese seem to like the machine guns best; we had a guy in here last week who spent almost $3,600 in an hour."

Escorting a visitor past the shooting range's pink-upholstered bar (a sign in English reads, "Please have a rest at the drinking room aftr firing") and into the weapons gallery, Zhang says, "The Japanese try everything, since they're not allowed to shoot in their own country.  They seem to like the rocket launcher."

Picking up a hefty, Russian-made AK-47, he laughs and adds, "This is the gun Americans like to shoot most."

*** 

(Insight Magazine, January 25, 1993) 

When paramilitary thugs gunned down Justice Minister Guy Malary outside his office Oct. 14, to many Haitians it was a body blow to the country's fragile return to democracy. Coming only hours after President Clinton had warned the U.S. was prepared to act "unilaterally" to enforce a U.N.-brokered accord to bring ousted President Jean-Bertrand Aristide back to power, the assassination was a blunt statement by the military and police leaders who rule the country that they have no intention of stepping aside.


Photos by Rick KozakThe assassination threw the country into turmoil, prompting the United Nations to withdraw most of its remaining personnel and to impose an embargo on the country, backed up by warships.

Clinton is pondering further diplomatic responses, but there appears to be little the international community. And while Washington is still officially optimistic that democracy can be restored to Haiti, few observers inside or outside the country believe Aristide can resume office, as planned, on Oct. 30 -- or possibly ever.

Has Haiti passed the point of no return? The carefully constructed agreement signed this past July 3 -- under which Aristide would be reinstated, the coup leaders removed and the military restructured -- is in tatters; the interim government under Prime Minister Robert Malval is on the verge of collapse; and the military, the police and their loose army of civilian thugs known as "attaches" are in unquestioned control of the country. The military seems prepared to weather the U.N. embargo, and outside intervention seems increasingly unlikely. Joseph Michel Francois, the powerful police chief in Port-au-Prince who is thought to hold the real reins of power in Haiti, seems ready to take the country down with him if he has to, and his followers have vowed to create "another Somalia" if U.S. troops return. "I'm Haitian," Francois told a local radio station on Oct. 14, "and I've chosen to die in my Country."

Hopes that the country could return peacefully to democracy were running high this past summer, when Aristide and Raoul Cedras, the general who deposed him in September 1991 coup, signed a set of accords on Governors Island in New York. Under the agreement, Cedras and other high military figures would leave their posts and allow Aristide to assemble a government and assume the presidency by Oct. 30; in return, the U.N. would lift the oil embargo it had imposed in June, which was crippling the country's economy. There would be a general amnesty for participants in the coup, and U.N. forces would be brought in to help separate the military from the police and "retrain" them in the fine art of responding to civilian rule.

Jean-Bertrand AristideBut even before the ink was dry, there were signs of trouble. The antagonism between Cedras and Aristide was so intense that the two never even met during the talks; they signed the agreement 12 hours apart. Aristide was able to set up a new government in late August with Malval, a publisher, as his prime minister, but tensions were so high by then in Haiti that Malval's swearing-in was held in Washington. And while the Parliament approved the new government, it did so for one reason only: "We didn't vote for Malval," says Antoine Joseph, leader of the Chamber of Deputies, the lower legislative house, and an opponent of Aristide. "We voted to end the embargo."

Political tension fed a rising climate of violence. Gunfire, not heard since the coup, was becoming a nightly phenomenon. "The trend started in July, about the time the Governors Island agreement was signed," says Ian Martin, director of human rights for the U.N. International Civilian Mission in Port-au-Prince. "There have been more than a 100 killings since then -- about 60 in September alone. And the violence is carried on with no attempt by the police to interfere." When Izmery, a key financial supporter of Aristide, was dragged out of a crowded church in mid-September and murdered execution-style by paramilitary thugs, it appeared that the agreement might rapidly unravel.

If it wasn't already clear, the murder of Izmery made it plain that violence was tolerated, if not directly controlled, by the military and the police -- and that it was designed to undermine Aristide's return. "By keeping people in a state of fear, the military could claim that Malval wasn't capable of running the country and maintaining peace," says one Western diplomat. "That would open the door for them to say, 'Haiti needs the military to restore order."

Rule by the gun, of course, is nothing new in Haiti, and installing a democratic regime there may be impossible, even with the most skillful diplomacy. Almost three decades of rule under the Duvalier family destroyed nearly all the institutions that might have been used to build an open democracy, and the country has a long history of despotism and violence. Both Francois "Papa Doc" Duvalier, the self-proclaimed "president of life," who came to power in 1957, and his son and successor Jean-Claude, known as "Baby Doc," who ruled until 1986, used a private militia of thugs known as Tontons Macoutes to keep Haitians terrorized; many are still around, reincarnated as police or attaches.

Moreover, the few democratic elements that exist are fragile. The party system is in its infancy; while there are almost two dozen political groups, the four main parties vie for power in a squabbling and ineffectual Parliament. The courts are virtually powerless, and the religious community is divided. The only institution of any real power is the military.

"We're trying to inaugurate democracy here," says Dante Caputo, the former Argentine foreign minister who now leads the U.N.'s mission to Haiti. "But it's a difficult situation -- we have to start bringing together institutions that are weak and have never known life under democracy." "Difficult" may be putting it mildly. Fully 75 percent of the country's 6.5 million people are illiterate, and the poverty is overwhelming -- Haiti is the poorest country in the Western hemisphere, and much of the educated middle class has fled abroad.

In the slum of Cite SoleilWhat's left behind is largely in ruins. The roads that wind through Port-au-Prince are riddled with potholes and run with sewage, and piles of rotting garbage overflow the narrow sidewalks. The streets of the capital are crowded with vendors hawking fruits, plastic jugs, wood carvings - anything cheap that sells. Prostitution and drugs are ubiquitous, and poverty is so rife that even the tombs in the city's central graveyard have been broken into and looted for jewelry buried with the dead -- or for the brass handles on the coffins. The T-shirt factories that line the road out to the airport are idle; there are no customers since the embargo, and electricity is spotty anyway. Even the windows are the foreign affairs and commerce ministries are boarded up; weeds grown on the grounds outside. At night, the streets are dark and empty. The city gives the impression of having been abandoned and left to die.

But of course, it hasn't; it's constantly patrolled by thousands of police and military attaches. There are thought to be as many as 5,000 of the attaches, armed by the police and given a few dollars a week as pay -- as well as license, quite literally, to steal. They're everywhere in Port-au-Prince, muttering into walkie-talkies and cruising the streets in their signature blue Toyota pickups -- some sporting bumper stickers that read: "Haiti -- Love It or Leave It."

But perhaps the most fundamental obstacle to peace in Haiti is the gulf between rich and poor. While most of the country swelters in the slums, working -- when there is work -- for wages of about 14 cents an hour, Haiti's elite inhibits the lavish suburbs on the hillsides around Port-au-Prince; most back the military government, and many are the beneficiaries of lucrative government contracts. Bridging the gap takes political skill -- skill that was beyond Aristide during his seven months in office.

While Aristide has been embraced as a symbol of democracy in the West, to much of Haiti's powerful elite he represents exactly the opposite. A physically slight but charismatic priest who rose to prominence in the 1980s through his populist sermons, Aristide enjoys near-cult status in the slums of the Port-au-Prince and in the rural countryside. But his Marxist rhetoric and die-hard opposition to the rich, while winning him the presidency in 1990 with an astonishing 67 percent of the popular vote, soon undermined his own effectiveness.

Raised as a Salesian Roman Catholic, Aristide was kicked out of the order for allegedly fomenting class violence, and his sermons inspired two assassination attempts against him in 1987 and 1988. After he was elected, he quickly alienated potential supporters; admitting that he was neither a politician nor an economist, Aristide failed to win over the business class or build a political coalition in the Parliament, relying instead on the mass support he got from the popular movement called Lavalas.

But that wasn't enough to sustain him in power, and a series of missteps soon followed that were to lead to his downfall. While effectively fighting to end corruption in the government, he made at least two demagogic speeches in which he praised Pere Lebrun -- a slang term for the flaming tires that his supporters hung around the necks of his opponents to kill them -- raising fears that Aristide was encouraging violence and retribution. He was soon accused of violating constitutional rights, and his support began to crumble.

"For the military, Aristide was a dictator," says one Haitian observer. "As far as the army is concerned, they didn't mount a coup d'etat -- they restored democracy."

The Haitian elite agreed. "Aristide is a priest, the head of a parish," says a professional in Port-au-Prince. "If you're not part of his parish, you don't get his sacrament. He has the support of three-quarters of the Haitian people, but he needs the support of that other quarter, because they're strong enough to create unrest -- and they'll always hate him."

Moreover, Aristide's relations with the West have been uneven at best. His rhetoric from the pulpit was anti-capitalist, nationalistic and often anti-American, and he was known to have "nervous attacks"; a CIA report submitted to the Bush administration characterized Aristide as "unstable."

Some observers say, however, that his two years in exile have sobered him up to political realities. "Aristide has learned a lot in two years," says Stanley Schrager, spokesman for the U.S. Embassy in Haiti. "He's been exposed to American views, and he realizes he's got to change."

Prime Minister Robert MalvalHe may not have the chance. If Aristide can return to power, he'll be working with the fledgling and tenuous government of Malval, who is well-liked by the international community but not nearly as popular in the slums of Port-au-Prince. One of the few members of the elite class who supports Aristide, the prime minister has a reputation for intelligence and honesty. "Malval is a rock of steadiness," says Schrager. "He's differed publicly from Aristide on a number of occasions, and deplored extremism."

But Malval has been unable to get his government up and running, to stop political assassinations or to disarm the attaches; in fact, he's virtually powerless. Malval and most of his 11 remaining Cabinet members have to work out of his suburban home -- partly because military-backed officials have not yielded him the presidential palace, and partly because most government offices have been looted of telephones, fax machines, even chairs.  The bureaucracies are bankrupt, bled dry by endemic graft and other corruption, and the payrolls of every office are bloated with "zombies" -- unnecessary workers who are friends or family members of the military -- and "phantoms," who exist only on paper. Corruption is thought to take as much as 90 percent of what the government spends.

Moreover, Malval has had to contend with direct physical attacks on his government, culminating with the murder of the justice minister. More than 100 protesters broke into the foreign ministry as Malval was trying to install Claudette Werleigh as the new minister of foreign affairs, and the finance ministry and burgled twice in September. And on Sept. 8, when Evans Paul, the mayor of Port-au-Prince, reclaimed City Hall from the attaches who have been occupying the building, five people were killed and 31 injured in the melee that erupted. "Malval has no control of the political situation," says Joseph, the leader of the Chamber of Deputies.

Indeed, Malval faces substantial opposition in the Parliament, where he's generally supported in the 17-member Senate and opposed in the 79-member Chamber of Deputies. Aristide needs the support of both houses to return; he can't proceed with the all-important reform of the military without Parliament's consent. But opposition to the plan is so intense that the body has been unable even to vote on it.

Aristide and Malval also alienated potential political supporters by forming a narrow government. "There are four main groups in the Parliament: the Social Democrats, the Liberals, the Nationalists and the Christian Democrats," says Joseph. "Of those, only the Nationalists are represented in Malval's government -- and the Lavalas people. So he can't expect to have wide support."

But Aristide's supporters angrily insist that calls for a broadly representative government are mostly hot air. "It's a myth to talk about an idealistic kind of government that will include everyone in the country," fumes Firmin Jean-Louis, the president of the Senate. "In Haiti, terms like 'conciliation' are used as blackmail; they say, 'If you don't include us, we'll make trouble."

And in a country where the Roman Catholic Church wields important influence, the Haitian National Bishops Conference has distanced itself from Aristide. "The Bishop's Conference has done everything possible to obstruct Aristide from becoming president," says Pere Hugo, a Belgian priest who has been in Haiti for 30 years. "The bishops never condemned the coup and called the Organization of American States 'criminals' for imposing the embargo."

Senate president Jean-Louis
Moreover, some of Aristide's most notorious opponents have been returning to Haiti from exile. Former post-Duvalier dictator Prosper Avril is back, as is Franck Roumain, the former mayor of Port-au-Prince who is thought to have masterminded a 1988 attack on Aristide's church, in which 12 people were killed. And Jean-Claude Duvalier's supporters say even Baby Doc himself may return from France, where he's been since 1986.

"I'm extremely pessimistic," says a Haitian political analyst, a member of the foreign-educated elite. "The international community stood by Aristide, but his opponents won't play the game. They can create a state of unrest that will make it impossible to rule. The U.N. gave Aristide an embargo from the outside, but his opponents can give him one from the inside. And so much hate has built up in this country over the past two years that reconciliation may be impossible -- they'd rather destroy the country than surrender."

Recent months have seen the birth of nationalistic and right-wing political groups, including the Resistance Committee to Defend National Sovereignty and the Front for the Advancement and Progress of Haiti, or FRAPH, which claims to represent several dozen organizations and is thought to express the political views of the military. It's also an unofficial base for the attaches, according to knowledgeable Haitian sources.

At now-weekly rallies, FRAPH manages to organize hundreds or even thousands of supporters to protest Aristide and what they see as the interference of the international community in Haitian affairs. In one recent protest, the crowd waved red scarves, the trademark of the old Tontons Macoutes, and shouted anti-Aristide and anti-U.N. slogans, while marching past the U.S. Embassy, as a white Nissan pickup truck loaded with blue-shirted, gun-toting police watched passively. "Aristide's a communist pig," shouted one marcher. "He killed people, set them on fire, broke into houses, destroyed factories! The seven months Aristide was president destroyed the country! And if he comes back here, we'll eat him! We'll eat him with bananas!"

While one U.N. analyst in Haiti dismissed the group only a few weeks ago as "a little neo-Duvalierist grouplet," it's become a force to be reckoned with. FRAPH leader Jean-Julot Chamblain told the local Radio Metropole in early October: "We want Malval to go. If he does not, we will force him to go."

And they may be able to. Haitian sources say it was FRAPH members who beat up journalists and threatened U.S. Charge d'Affaires Vicki Huddleston on Oct. 12, when the USS Harlan County was not allowed to dock in Port-au-Prince. The group has successfully called for general strikes in Port-au-Prince in recent weeks (gaining cooperation by spraying downtown markets with machine-gun fire).

"There will be civil war if Aristide comes back," warns a man in a black hat and sunglasses outside FRAPH's headquarters by the Champ de Mars park, a few blocks from the National Palace. "Since he left, there haven't been tires burning in the streets. But if he comes back, there will be tires burning -- lots of tires burning. If Aristide comes back, he better carry a gun."

While FRAPH's funding and organization remain shadowy, Haitian analysts say the group is tied to the military and responds to the orders of Gen. Cedras, the commander of the 7,000-man Haitian army and the effective leader of the country. A soft-spoken man who's seen as politically moderate (he is thought to have participated only reluctantly in the coup), Cedars runs an army that is untrained, poorly equipped and corrupt. High-level officers are reputedly involved in gun-running, petty racketeering, and drugs; one officer, Col. Jean-Claude Paul, was indicted in the U.S. on cocaine-smuggling charges before dying under suspicious circumstances in 1988.

Antoine JosephAlmost to a man, the military is dead-set against Aristide's return and resents the U.N. presence -- in part because members of the military don't want to lose the money they get from smuggling and other activities, and in part because of ideology.

"The army's a problem in this country," says Joseph. "It was set up like others in Latin America -- to fight communism. And the situation is the same in the minds of many in the army. They see that communism is dead abroad -- but here they see Aristide."

The ties between the attaches and the military are clear. The U.N.'s Martin says, "People putting up Aristide posters are liable to arrest, and there have been beatings and torture against those arrested for political and even ordinary crimes. Who's doing this? It's the armed forces, attaches linked to the armed forces and in rural areas it's the chefs de section and their assistants.

"After the Izmery killing, pressure was brought on the military, and the killings went down for a while. That suggests that if the armed forces choose to, they can control the level of violence. And there is credible testimony that the activity of some of the attaches is directly linked to Michel Francois."

While international attention has been focused largely on Cedras, the shadowy figure of Police Chief Francois may wield even more influence. A taciturn man who rarely gives interviews and refuses to be photographed, the 36-year-old Francois is widely thought to be the leading force behind the 1991 coup. As head of a 1,000-man force, Francois is thought to control the state-run media and to be profiting from the national cement industry. And many Haitians see him as the last, and most stalwart, bulwark against Aristide.

"I'm not alone -- there are many people who identify with Michel Francois," he said in an interview with the Haitian paper Le Nouvelliste on Sept. 23. "When my life is in danger, I'm capable of doing anything." And when asked if his men would allow him to leave, he responded in English, "That is the question."

"The key to Haiti's crisis is Michel Francois," says Joseph of the Chamber of Deputies. "But even if you remove him from the police force, you'll have to find jobs for all the other police--because they'll be dangerous."

Both Aristide and U.N. envoy Caputo have linked Francois directly with the attaches, going so far as to label him a killer. Francois denies the links, saying that with more than 17,000 registered guns in the city, Port-au-Prince is swarming with armed groups over which he has no control. Nevertheless, it was widely reported that, before and after the slaying of Izmery at Sacre Coeur Church in September, police drove by and did nothing to intervene.

While the military and police maintain their monopoly on force, support remains high for Aristide in the sprawling, fetid slums in and around Port-au-Prince. "We're waiting for him to come back. There's no one else for us," says a young man crouched outside a tin-walled hut in Cite Soleil, a tangle of alleys and open sewers in northern Port-au-Prince.

But few are willing to risk their necks against the attaches. Aristide has called for the establishment of neighborhood vigilante committees, and many already exist; most of the shantytowns have established "brigades" to guard against the shootings and robbery that go on every night.

In the narrow, twisting paths that run through the shantytown of Carrefour Feuilles, on the hillside that runs up the southeastern edge of the city, young men gather every night to watch for the approach of the attaches. It's a warren of unpaved alleys and dark culs-de-sac patrolled by Aristide supporters with rocks and machetes. There's not a lot the brigades can do against machine guns. Nevertheless, says one member, they have certain advantages.

"This is dangerous territory for the attaches," says Jean, a wiry man in his early 20s who leads a 50-man brigade. "We don't walk in the streets; the attaches have guns, and we don't. But we know the area. At night, we'll get together; a few people on one corner, 10 on another, 10 on another, and we keep our eyes open. The attaches send spies up -- guys who know the area. But we know who they are."
But little chance remains of a full-scale civil war or a popular uprising. Most of the poor cling to the unlikely hope that the international community will intervene militarily.

"The U.N. is no good if it's an intervention for nothing, if there's no fighting," says Jean. "But if it's to fight the attaches, then it's okay. And reforming the police won't happen unless the U.S. comes in, because the Duvalierists want to keep the country the way it is. But Michel Francois can act brave because he knows the Americans are just joking with him."

Under such circumstances, can Aristide ever return? Clinton has said that the Haitian military would be "sadly misguided" to think that the U.S. would abandon its effort to restore democracy, but the success of the embargo, the freeze on Haitian assets abroad and the naval blockade imposed by the U.N. remains to be seen. The last embargo was leaky, with at least a dozen countries in Europe, South America and Africa routinely ignoring it, and the elite seem to be able to get what they need. The military is thought to have stockpiled a year's supply of oil and appears ready to resist to the end, and it is playing up its role as defender of national sovereignty; as the USS Harlan Country lay helpless at anchor on Oct. 12, unable to dock because of protesters, Cedras made a show of laying flowers at a statue of Jean-Jacques Dessalines, who saved the country from an invading French force in 1804 and won the country's independence.

Aristide's supporters generally welcome the embargo. "The support of the U.N. and the U.S. is indispensable to us to get control over the country's says Senate leader Jean-Louis. But even if it works, there may be a backlash. According to the Haitian political analysts, "Most people see the U.N. as an intervention force. No one in Haiti forgets that we were occupied by the United States for 19 years -- and if Aristide comes back, he will have been imposed on us by the blockade." And even among his supporters, Aristide could be seen as a puppet of the American power that he used to decry in his sermons as "imperialistic."

Joseph says, "When Aristide was in power, he had problems dealing with Parliament, with the police, with the Catholic Church and with the private sector -- and when you have problems like that, you lose your power to govern. So there was a coup d'etat. Now, I'm not in favor of a coup -- it's not constitutional. But there are still a lot of sector opposed to Aristide. And there are even more problems than before."

But to most observers, discussion of Aristide's political skills is moot -- they expect the situation to be resolved as it has been so often in Haiti's violent past. "It won't happen at the airport; we're a polite and well-mannered people," says a member of Haiti's professional class, with an ironic smile. "But he'll be slaughtered eventually. It's almost guaranteed. He'll be a sitting duck."

(Insight Magazine, November 8, 1993)

In India, the kidney business is thriving

                                    PHOTOS BY BRIG CABE

After Meenakshi sold a kidney, her life just got worse

Since then, she says, her life has been ruined. She can't work without suffering abdominal pains, and like other Villivakkam donors, says she tires easily. The money she earned went quickly to pay debts.

"The problems didn't end, they just got worse," she says. The crowning blow came last year, when her husband, again out of work, sold one of his kidneys as well, without telling his wife.

Meenakshi's story is only one of hundreds in Villivakkam, which has become known in Madras as “the kidney colony” for the number of people there who bear the scars of their “rewarded gifting.” Its residents say there are 300 documented donors in the village and probably another 200 or 300 who have kept their operations secret. In fact, says one villager, Villivakkam has been "farmed out” and the trade has moved to other slums around Madras -- Ayanavaram, Korattui and Ambatur.

But in the Pandalai Clinic, Dr. Thomas defends his work vigorously. They've stopped using middlemen, he says, so all the money goes to the donor. "Donors come here on their own, by word of mouth,” he says. "And it's not just the destitute who come, because the really destitute are not suitable -- they're usually not healthy. Our donors mostly come from the lower middle class, small shopkeepers who need money to meet a family obligation and have no way to get it. They may need to get money for a daughter's dowry, or to pay for a sickness in the family. Some get their businesses out of trouble."


Surgeon Thomas (r) with a kidney recipient. In fact, says Thomas, potential donors are screened not just medically, but by social workers and psychologists as well. “We test for hepatitis, and 5 to 10 percent are weeded out on those grounds. Another 5 percent are weeded out on social grounds," he says. The ones who are found fit are then tested for tissue matching at another hospital, and ultimately matched with a recipient. "We have about 60 donors waiting at any given time,” he says. "And a waiting list of about 50 recipients."

Thomas, Dr. K. C. Reddy and the other two surgeons on the team perform 16 renal transplants a month at the nearby Guest Hospital. They work simultaneously in adjoining operating theaters, two on the donor and two on the recipient. The kidney is removed, cleaned, cooled and transferred within 25 minutes. They limit the number of foreign recipients to two per month.

"We have a number of patients from the littoral countries around the Indian Ocean: Bangladesh, Nepal, Malaysia, Sri Lanka, Singapore, the Maldives. But foreigners come here sometimes and find they have to wait for months and months,” Thomas says, shrugging. "So they go to Bombay; it's not difficult to find out where it can be done quickly there."

While the donors of Villivakkam are not paid much for their organs, they make out better than some others – who have literally been robbed of them. In one notorious case that sparked debate as high as the Indian Parliament this year, there was apparently a theft of a kidney at Nanavati Hospital in Bombay several years ago. Although accounts differ and the facts have yet to be sorted out, a resident of Bombay, Sanaullah Khan, claims that when he went to a hospital complaining of stomach pains he was approached by a man who told him he could have his problems cured for free if he went for a blood test at a particular clinic in the city.

The man, who went by the name of Govind, registered the 19-year-old Khan under a false name and a few weeks later took the youth to Nanavati Hospital, where he was given an anesthetic. Later, Khan told police, he woke up in a recovery room, with a nurse telling him that his stomach problems had been fixed. Ten days later he was discharged, with reports from the hospital showing that he had been suffering from blood clotting problems.

Suspicious, Khan's family took him to another hospital, where it was discovered that his left kidney had been removed. Khan went to the police.

Debate is still going on between some members of Parliament, who want racketeering charges brought against the doctors involved, and India's health minister, who says Khan willingly sold his kidney for 30,000 rupees.


Other reports of organ thefts have surfaced. In an astonishing case earlier this year, the Indian Supreme Court moved to restrain the Central Jalma Institute for Leprosy in Agra from removing organs from patients after allegations that institute officials had lured lepers from different parts of India with promises of free health care, then removed their eyes and kidneys for resale.

According to the allegations (which have yet to be proved but are thought to be true by a government official close to the case), doctors at the institute's hospital told the patients they needed to have some of their organs removed to prevent the spread of the disease. The government says 21 patients were operated on and their organs sold to wealthy buyers; the lepers were then given a little money and sent home.

Even when buyers get healthy kidneys, complications often set in. There have been reports of cases where doctors botched operations, the patients died, and the clinics issued reports saying that the patients had been discharged against medical advice.

"Anything can happen in India," says a physician in Bombay. "Unlike in America, there is no way to get legal redress -- it's very difficult to sue a doctor."

A team of doctors who studied 130 West Asian patients who had kidney transplants in Bombay reported "unusually high" rates of mortality; at least 25 died after returning home and four contracted the virus that causes AIDS. Bacterial and viral infections were common, said the doctors, because patients had been overdosed with the immunosuppressant drug cyclosporine in order to match incompatible tissues.

Moreover, middlemen get many of their donors from the ranks of blood donors, who tend to be malnourished, alcoholic and diseased. And while the middlemen can't alter the essential blood typing, they can and do pay off blood testers to ignore evidence of malaria, jaundice or other diseases. And less than 20 percent of the blood in India is tested for HIV, the virus that causes AIDS, according to a surgeon in Delhi.  

"They say they test for HIV, but they don't,” he says. “They don't even test for hepatitis B. It just shows you that you can enact any law, but the enforcement is very different."

A study by Kuwait City's Hamed al-Essa Organ Transplant Center of 59 Kuwaitis who had gone to Bombay or Madras for the operation found that the operations were often done in badly equipped private clinics, with poorly trained staff. Six of the patients they studied died shortly after the operation, either in India or after returning to Kuwait; one even died on the plane home. Many arrived home with bleeding wounds, serious surgical complications and diseases such as AIDS, malaria, hepatitis B or tuberculosis.

One patient received a diseased kidney that had to be taken out; another, complaining of abdominal pains, was found to have a set of surgical scissors still inside him.

Despite the horrors of the trade, it has become so entrenched and so lucrative that new laws in India, even if enacted, probably will not have much impact. There have been international efforts to wipe out the trade since 1970, but without a global agreement and tough enforcement it's likely to continue.

"You're not going to be able to solve the problem if there are weak links," says Richard Lillich, a law professor at the University of Virginia who has studied the problem extensively. "You've got to have some uniform obligation on the international plane, implemented by every country. The trend is in that direction, but there's still no overarching international convention.”

(Insight Magazine, June 8, 1992)

 ***

(For more information on this topic, see the website "Organ Selling." )

On a warm, humid morning in December, children playing in a waste dump near Rio de Janeiro stumbled onto two battered and abandoned bodies. Both were girls; one had been raped and mutilated before being shot in the head; the other had been beaten and then shot repeatedly. And the girls were still children -- kids who lived on Rio's tough and dangerous streets.

                                            Photos by Brig CabeThere are, according to UNICEF, around 12 million children living by their wits on the streets of Brazil. Some have families they see from time to time, but a huge number are simply abandoned. Sleeping in doorways or on beaches at night, they swarm over the big cities in packs -- there are tens of thousands of them in Rio de Janeiro alone, and Sao Paulo and Recife have thousands more.

They seem to be everywhere: begging in front of restaurants, peddling cigarettes in sidewalk cafes, shining shoes outside the train station, washing clothes in public fountains. Take a morning stroll on the elegant, black-and-white mosaic sidewalk that curves along Rio's Copacabana Beach and you'll see dozens of them, sleeping under the palms.  And as the country plummets ever more deeply into economic chaos, there are more kids on the street every day.

As their ranks have multiplied, so has petty crime, both in the cities and the sprawling shantytowns known as favelas that surround them. Much of the blame, ironically, can be put squarely on Brazil's juvenile justice code, which makes it next to impossible to lock up anyone under the age of 17. If a kid is arrested, whether for the first or the 40th time, he's usually back on the street in 48 hours or less with a slap on the wrist.

Armed with that virtual guarantee of impunity, kids as young as 5 and 6 years old have taken to crime in droves. Some work for drug dealers, some become prostitutes, some pick pockets and snatch purses, some form gangs and rob pedestrians with knives and broken bottles. As neighborhoods have become more dangerous, small groups of vigilantes  or death squads, as they're known  have implemented their own, bloody system of justice.

Last year, according to government statistics, 492 street kids were murdered in Brazil, many of them gruesomely mutilated. Other groups, like Rio's National Movement for Street Children, say the figures are even higher. "From January 1988 to December 1990, 4,611 kids were assassinated," says Volmer do Nascimento, the group's director (and a former math teacher with a penchant for quoting statistics from memory). "That's 4.2 kids a day," he adds. "Every day. And it's getting worse."


The kids get killed for almost any reason. Some are thieves who prey on shopkeepers; the shopkeepers, unable to get them jailed, hire gunmen to solve the problem. Others work for drug gangs or crooked cops and get in over their heads. Some are witnesses to other crimes and have to be eliminated, a practice known as "burning the files."

Some, according to social workers, are simply killed for being street kids. When the body of 9-year-old Patricio Hilario da Silva was found on a main street in Ipanema in 1989, there was a handwritten note tied around his neck. "I killed you because you didn't study and had no future," the note read. "The government must not allow the streets of the city to be invaded by kids."

The death squads, which often include ex- or off-duty cops, have proliferated through the favelas -- one study found 15 groups in the Baixada slum alone -- as de facto police. They are generally supported by the people there, who get little or no protection from official police.


Judge Darlan: Death squads target "anybody""The death squads don't just kill children," says Judge Siro Darlan of the juvenile courts. "They go after criminals, homosexuals, old people, anybody. They exist because the government can't guarantee security to the people. So it's a threatened population that takes things into its own hands."

"We're living in a society of generalized violence;' agrees Roberto dos Santos, a Rio social worker. "The public doesn't believe in justice, or in the leadership. So there's a widespread feeling that violence is a cure for the problems."

Three of every four homicides in Rio go unsolved, according to one of the city's public prosecutors. "The police are almost completely ineffective," says social worker Nascimento. "In Duque de Caxias [a Rio favela], 919 people were killed in 1989, according to official statistics. In 281 of those cases, the police could identify the killers. But only 25 of those have been brought before a judge, and only eight were convicted."

A low conviction rate is not, of course, directly the fault of the police. In the lawless favelas, witnesses are often understandably afraid to come forward to testify; in Rio alone, at least 13 prosecution witnesses to death squad killings have been murdered since 1983. And juries are often unwilling to convict, partly because of the danger of reprisals, but also because a large part of the population condones vigilantism. In Sao Paulo, the gangs are called justiceiros -- "justice bringers."

Disdain for the police has become so pervasive, in fact, that even spontaneous mob lynchings are becoming common. When three men tried earlier this year to steal a van in Rio's middle-class neighborhood of Jacarepagua, the van's driver smashed it into a tree and fled, screaming for help. A crowd started chasing the thieves, caught one of them, then tied him to a tree. As the crowd swelled to more than 50 people, someone doused him with gasoline and set him on fire. He burned to death.

Police say the death squads earn $40 to $50 for killing a street kid and as much as $500 for an adult. In January, Health Minister Alceni Guerra said the government had evidence that "businessmen are financing and even directing the killing of street children." The military police confirm this. "There are groups that are paid by businessmen to protect their shops," says Maj. Altanir Freitas. "But since the community protects these groups, it's hard to find out who they are."

Some of the death squads are hired by drug dealers. According to Freitas, the drug gangs extend a great deal of social control over the favelas. They'll give the kids food and protection in exchange for working for them, and for not causing trouble for their customers. "Dealers try to give the impression they're acting on behalf of the community," he says. "If a kid starts making trouble, committing crimes, they might kill him."

Or if he just knows too much. "The kids are used as avions -- runners for the dealers," says Judge Darlan. "They take the drugs from dealer to seller, and eventually they get to know who the dealers are, where the drugs are hidden, where the group's headquarters are. That's why they become dangerous and get killed."

The death squads have a pedigree, of sorts. They've been around since the 1950s, when the military regime allowed them to freely wipe out criminals  and political opponents. They've been outlawed since the mid-1980s, but police involvement is said to be so strong in some areas that entire police forces have been disbanded. With salaries abysmally low -- a starting cop earns about $100 a month --  it's not surprising that they look for outside work. A report last year from the Rio police said that fully half of the members of the city's death squads are off-duty or ex-cops.


For Rio's street kids, life is nasty, brutish and usually short. Few bother to bathe, and most own only the clothes on their backs and the money they can hide in their sneakers. Parasites and lung infections are common. They spend the day hanging out at the beach or in the parks, begging, sniffing glue or stealing. Some "guard" parked cars for a few cruzados or make money delivering messages. They're often beaten by the police or older kids, and every day at least one turns up dead.

Many are thieves, but there are other ways to get by. Prostitution is common among the kids. "There are 12-year-old boys who have wives," says Darlan. "We've seen girls as young as 9 years old prostituting themselves for a few dollars, both to other kids and to adults." Some are controlled by pimps, who fix them up with foreign tourists. As a result, says a former child prostitute who now counsels kids, AIDS has become rampant.


Drug use is rampant among the street kidsDrug abuse is almost universal -- especially glue, which is cheap and widely available. They put a little into a plastic bag, stick their faces in and breathe the fumes for the hallucinogenic effects. Most kids, says social worker dos Santos, go to sleep drugged. He says that glue sniffing is common among the youngest kids, but that they move on to marijuana and cocaine as teenagers. Even heroin, once rare, is more widely available.

"Ninety percent of the kids who come through here are addicted to marijuana, cocaine or glue, because they get involved with the drug gangs," says Darlan. "It's how they get paid by the dealers. They try to get them hooked."

At night, life gets more dangerous; most kids band together for protection against other gangs, and against the police. They sleep in doorways, in huddles around the train station, in the parks along Guanabara Bay on the city's eastern edge.

There's a real threat from the cops. "I got arrested once -- they didn't tell me for what," says Paolo Costa, a street thief. "Two cops beat me up, then took me to the police station. Then they let me go." Other kids have told social workers that the police make them eat cockroaches and excrement, and burn them with cigarettes. To protect themselves, older kids will sometimes press-gang younger ones into standing watch through the night, and some of them have learned tricks to keep the police away. "They carry razors," says one social worker. "If a cop hassles them, they threaten to slice their own faces up and blame the police."


The military police headquarters is a sullen, prison-like compound that dominates the block of Evaristo da Veiga Street, a few steps from the Cinelandia district in downtown Rio. At the arched entry, guards in blue uniforms and submachine guns lounge watchfully. Upstairs, in a huge chamber dominated by portraits of former police chiefs dating back to the late 1800s, Col. Carlos Cerqueira denies that he runs what many critics call a profoundly corrupt and inefficient operation.

"They call themselves policemen and defenders of the community," he says of the off-duty cops arrested as members of death squads. "But of course they're not. They're criminals."


Police Chief Cerqueira: a tough jobCerqueira has a tough job. While considered personally honest, he presides over a poorly paid force with a tradition of taking the law into its own hands. Many members still act, as an Amnesty International report accused last year, "as if they are beyond the law, torturing with impunity and increasingly resorting to extrajudicial measures."

Examples are plentiful. Last March, for in stance, a young woman named Adriana Ceres Buenos was killed by a police officer while riding as a passenger on a motorcycle through downtown Rio. The officer signaled the driver to stop for an inspection; when he didn't, the cop pulled out a pistol and fired, hitting Buenos in the back. She was 17.

Corruption, too, is endemic. "When the cops catch kids committing crimes, they split up the kids' money," says Fabio, a 13-year-old shoeshine boy who has worked Copacabana's restaurants for five years. "Only the military police are corrupt  the civil police are honest. But the military police threaten us. They ask us to steal for them. Sometimes they ask us to sell drugs to tourists."

Why? "Kids will go up to tourists and ask them if they want to rent an apartment or a cheap hotel room. Then they offer to sell them drugs  -- marijuana, cocaine, you know. They take the tourists down to the beach and give them the drugs, but the police are watching.  And they come down and arrest the tourist, and ask them for a bribe. They ask for $3,000. But they take what they can get."

Police also apparently still torture suspects to get evidence or information. While torture was strictly outlawed in the country's 1988 constitution, prisoners regularly charge that they have been beaten, given electric shocks, had their heads held underwater and been tied upside down hanging from an iron bar -- a position known as "the parrot's perch."

Take the case of 14-year-old Marcelo Moreira Pacheco. While playing with a friend, 13-year-old Andre Leota, one summer afternoon, they were assaulted by three men. Marcelo got away, but Andre vanished. When Marcelo went to his friend's house the next day, five military police arrived and took him to a hut in the favela, where they tortured him with electric shocks to his fingers, anus and other parts of his body. After a few hours, he was handcuffed, driven to a new location and tortured some more, this time joined by more military police. Altogether, Marcelo was tortured and detained for 12 hours before the police released him, he said in his official complaint. But he was lucky. Shortly after Marcelo was released, his friend Andre was found on a waste dump. He was dead.

As the dull roar of evening rush-hour traffic filters up from the street and through the thin curtains in his office, Police Chief Cerqueira nods his head slowly when asked about such reports and says they've been exaggerated. But he admits that he's been coming under growing popular pressure to solve, through whatever means necessary, a problem that is beyond his control. "The public isn't happy. They want us to be tougher with homeless kids and get them off the streets." He pauses, frowning. "In the developed world, people don't question whether a kid has the right to live if he's broken the law. In Brazil, we're still discussing it."


It's a hot June afternoon in Fatima, a beat-up Rio neighborhood of squat, drab buildings and crowded streets that reverberate with the blare of radios and car horns. Just overhead, along the lush green spine of hills that wind through the city, floats the upper-class neighborhood of Santa Teresa, an oasis of turreted houses and well-tended gardens. Fatima, down below, is gritty, rough, raucous. Paolo, a wiry kid with an aggressive swagger and a raw, phlegmy voice, is hanging out with friends near a bar in Riachuelo Street. He hasn't seen his family in five years, he says. He survives by attacking people and robbing them. He's 14.

"We make 15,000 cruzados [about $50] a day ripping people off," he brags, scratching a rash down the side of his neck. Like most kids who sleep on the streets, he has skin infections and bronchitis. His eyes dart around alertly as he talks, taking in everything and everybody that goes by, like a predatory animal. "Three or four of us will go out and get around some guy. Women are best, they get scared real fast. We stick a broken bottle in their face, and they start to fart." His friends crack up at this. "They're shakin' and sweatin', and we just take their money. Yeah. It's easy."

Paolo's turf stretches across the heart of downtown Rio, from the trendy restaurants and theaters of the Cinelandia district up to the train station, where he sleeps most nights with his girlfriend and his gang. He can usually eat for free at one of the church-run shelters scattered around the city, but after they close in the late afternoon he gets his gang together for the evening's hunt. When night comes, they'll need money -- for glue to sniff, for cigarettes, for the samba dance halls.

Solitary kids will snatch purses, but the smart ones form gangs, which also gives them protection from other, bigger street kids. There's a standard repertoire of techniques they use: Some will stretch out along a block, even a crowded one in the middle of the day, pick a target and close in on him slowly from different directions. Or they'll dart out together from a doorway or alley, surround the victim and go through his pockets, then take off in different directions. In the tourist areas, one member will approach a prospective victim and ask for the time; answering in English marks you as a target, since foreigners usually have money, rarely go to the police and are often getting ready to leave the country. Some of the kids rob people while pretending to sell them cigarettes or gum. And prostitutes  who in Rio are often transvestites  walk up to men on the street and stroke them, while an accomplice comes up from behind.

With such thefts increasingly common, savvy Rio residents go around prepared. "You always carry something in your wallet, so they get something if they rob you," says Ricardo Silva, a teacher. "Otherwise they get mad and cut you."
 

At 9.30 on a clear Wednesday morning, the hard wooden benches that line the halls of the Juizado de Menores in Rio are already crowded with kids and their mothers waiting to be processed through the juvenile justice system's revolving door. Social workers with armfuls of manila files trudge back and forth, locating parents, making arrangements for kids to meet with counselors, setting court dates. It's clear from the looks of boredom and amusement on the faces of the kids that most have been here before and that they're not impressed. But on the faces of the mothers there's a different expression: pain, humiliation and fear.

Siro Darlan is the chief judge of the system. A direct, no-nonsense guy in his early 40s, he's partly judge, partly counselor and partly father to kids who have few adults they can trust. Darlan's task is to get kids out of street crime and into productive lives. But the laws are so watery that it's a largely impossible job.

Under the country's juvenile code, once a child is arrested he's quickly brought before a prosecutor, who tries to locate the parents and then makes a recommendation to the judge. For a first offense, a kid usually will get a stern talking-to and be set free. Repeat offenders will meet with social workers, who try to get them placed in simple jobs, as office messengers for instance, or send them to a job-training program run by a church or private relief agency. Only if a child is guilty of a serious crime -- armed robbery, say, or murder -- is he sent to a juvenile detention center, for a maximum stay of three years. But the centers aren't jails, and there's no real security. The kids sneak out at night quite regularly, says Darlan. And there are so few beds available that many kids are simply released.

That kind of impunity makes them valuable to adult criminals, many of whom are former street kids. "They use the kids as shields," says Darlan. "And the kids go along with it. The kids know they won't be punished, so sometimes they assume guilt for things they haven't done, to protect the adults. And all this gives them a feeling of power -- they feel like they can get away with murder."

About 2,000 kids a year are arrested, the majority -- about 80 percent -- for stealing. For most, it's not their first encounter with the courts. "This is the file of a 16-year-old girl who's now in one of the shelters," says Darlan, plunking down a stack of arrest reports that's at least 6 inches thick. "Theft, robbery, gang formation. Twenty two arrests." He stops, leafing through the buff-colored forms. "The first time, she was 6 years old.

"It's a tragedy, really," he continues grimly "By the time these kids get here, they're already very worldly. There's not a lot we can do to keep them from getting in trouble again."


It's late on a weekday evening in Copacabana, the thin strip of glitzy hotels, expensive apartment buildings and hard-currency jewelry shops that stretches for miles along Rio's most famous beach. A tiny kid with the unlikely name of Anderson is wending his way through the tables at an outdoor cafe called Mab's, peddling cigarettes and gum to the customers. At this hour there aren't many, just a couple of prostitutes and some tourists. The breeze off the ocean has turned cold, but he's barefoot and doesn't have a shirt. "Dirty," he explains, with a shrug. Nine years old, he works from 4 p.m. to midnight and makes $3 to $6 a day. He buys Marlboros for 50 cents a pack downtown, then brings them to Mab's to sell for a dollar.


Anderson (l) sells cigarettes to surviveWith his 13-year-old brother Enrique, a shoeshine boy, he takes a bus to Copacabana every afternoon from the shantytown north of the city where he lives. The trip takes about an hour and a half, and they do it six times a week. Some of what they earn they give to their mother, who works as a maid. "We split the money half-and-half " says Enrique, a tall, likable kid who looks after his brother. "I always have a little saved."

Anderson and Enrique are typical of another breed of street kids, the ones who still live with their parents but have to help support their families. With the Brazilian economy in a shambles -- the gross national product has been growing at a sluggish 3 percent a year for the past decade, and the country is mired in a debt of $111 billion -- hundreds of thousands of people have been streaming from the country into the cities in search of jobs. But with housing in Rio at a premium, they settle in the sprawling shantytowns that spread up and down the steep hillsides of the city and into the northern suburbs.

With names like Cidade de Deus, Baixada Fluminense, Rocinha and Duque de Caxias, the favelas are warrens of narrow, unpaved alleys and sewers running between precarious shacks crammed up against each other. Most have electricity, but plumbing is primitive at best. Drug addiction, alcoholism, prostitution and child abuse are rampant, health care is nonexistent, and almost one in three kids is born to an unwed mother.

No one knows just how many people live in favelas, but it's in the millions. Rocinha alone is thought to have nearly 150,000 inhabitants. "These are people on the edge of society," says Marcos Maranhao, head of the mayor's office on street children. "The kids don't get affection, food, any kind of social structure. They don't even have basic sanitation -- though of course most have television!"

Marcia Bandeira de Mello Leite, a sociologist at the Brazilian Institute of Geography and Statistics, says more than half of Brazil's children between the ages of 10 and 17 live in families earning less than $30 a month per person. School conditions are atrocious, she says, and it's common for kids to drop out and go to work; in some parts of the country, only one child in 10 makes it to the eighth grade. "More than half the kids between the ages of 15 and 17 are working," she says, "and about 18 percent of kids aged 10 to 14. Kids under 14 aren't allowed to work, but employers turn a blind eye. They can get the kids cheaply."

Some kids have no choice: They've been abandoned and have to work if they want to eat. But even children with families figure out that they can often improve their condition by moving out. "A lot of these kids live in families where the mother is a prostitute or the father is an alcoholic, they get beaten regularly, and they don't get enough to eat," says dos Santos. "Then they find out that if they live in the street and start committing crimes, they can eat, they can buy clothes, they can even save money. So they leave."


For most of Rio's street kids in the struggle for survival, the street eventually wins. But a few manage to escape, with the help of a loose network of churches, juvenile shelters, street educators and private aid groups that try to turn their lives around. There are an astounding number of groups that claim to help street children -- 522 of them, according to the mayor's office -- but only a handful that make much of an impact. The two government-run institutions, the State Foundation for Minors and the National Foundation for the Welfare of Minors, house kids convicted of serious crimes, and both, according to Amnesty International, have reputations for mistreating them.


Social worker Nascimento brings help to the streetsSmaller, private centers, often funded by churches and staffed by volunteers, provide counseling, walk-in medical care and food. The Children's Crusade runs a half dozen centers where kids can learn trades -- pig breeding, for example -- and find relief from the streets. They send "educators" out at night to give the kids sandwiches and juice, clothes and medical help.

The most high-profile group is the National Movement for Street Children, which was started in 1985 by Nascimento. A small, very intense man with a rapid-fire way of talking, Nascimento has been skillfully using the national and international media to pressure the government to develop a national policy on street kids.

But national policy is of no interest to 10-year-old Jackson. He has been on the streets "for a long time" -- he can't remember when he got there, or much about the town he grew up in, or even his family. He sneaked onto the back of a truck headed for Rio because he "wanted to see the city." It's hard to understand a lot of what he says: At least six of his front teeth are gone, knocked out in fights. The left side of his face is smeared with a noxious-looking pink cream that a social worker gave him for an infection, and it gives him a diseased, slightly demented look. But Jackson doesn’t seem too concerned about his looks – he’s got bigger things to worry about.  Like surviving another night on Rio’s mean streets.

(Insight Magazine, August 5, 1991)