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 t