PRIVATISATION is a dirty word in Hanoi. When cadres or the state press refer to the need for change in Vietnam's often backward and lumbering state-owned enterprises, they talk instead of 'reform', 're-organisation' or even 'equitisation'. Foreign businessmen and economists used to think of it as some sort of peculiar Vietnam in-joke. Socialist sensibilities meant that you could not talk of privatisation, and yet all looked forward to the day when the state sector was finally knocked into shape and hived-off - wholesale. Now nobody is sure when - or if - that might start to happen. The first steps of reform have been taken. At least 6,278 state firms now stand free, in theory, of state subsidies and are accountable to one office rather than a ministry. They can form boards of management, prepare audited accounts and, if they fail, face bankruptcy. Pockets of dynamism now exist. State companies such as Hanel Electronic, a fast-growing ambitious consumer goods manufacturer, are going from strength to strength in a string of joint ventures with Daewoo of South Korea. But for the most part, the bulk of the remaining firms stand like creaking monoliths run by managers who are simply unmotivated. There are huge cement, mining and textile enterprises whose real balance sheet strength and land holdings remain a complete mystery. Cash-flow analysis, marketing and distribution strategy remain largely non-existent, fuelling fears of corruption. Several Vietnamese economists privately believe 'hidden subsidies' remain, while many worry about the poor use made of new-found profits, often squeezed into housing, cars and poorly thought-out investments. 'I was shocked to find a basic lack of entrepreneurialism and enterprise,' said a foreign analyst who was one of the first accountants to spend time with a state firm as part of a United Nations Development Programme aid project. 'It was black-hole management going from day to day. There was no strategy, no reporting systems, even before you tried to create balance sheets and value assets.' According to government figures, state firms account for 85 per cent of fixed assets in industry and employ an even higher percentage of skilled workers. They provide at least half the state's tax revenue. Both the Communist Party and administration are now hammering out plans to lead the country into the next century and the future of Vietnam's remaining state enterprises lies at the heart of it. Further reform is likely to be both a crucial political and economic factor as Hanoi faces questions of control and ideology while treading its careful path to market-oriented socialism. For foreigners, reform is also a key prerequisite. Vietnam has a tiny private sector, mainly built up of family businesses. The bulk of industrial resources lies with state enterprises after years of communist central planning. Here lie potential joint venture partners, access to land and the workforce. Here are the indicators of the economic vitality of the country. Progress in turning key state firms into respectable open firms of an international standard will be crucial for the formation - and later success - of any future stock market. Both officials on the inside and foreigners on the outside are warning not to expect too much too soon. 'Ultimately there is no reason why the bulk of these enterprises cannot be cleaned up and auctioned off,' says Bradley Babson, the World Bank's resident representative in Vietnam. 'They know they want the state enterprises efficient, competitive and transparent, but how far they want to free them from the state is perhaps another matter.' Mr Babson is expecting the latest trends to become apparent in the next few months when the government presents him with an action plan on enterprise reform. This may give the first taste of current state thinking ahead of the Communist Party's eighth congress early next year. The Congress, to be followed by a general election, is expected to finalise the state's next five-year plan. Mr Babson is hoping the action plan may reveal an extension of a pilot equitisation scheme, where companies are evaluated and shares sold to managers and workers. The initial scheme involved three state firms in Ho Chi Minh City - a shoe factory, a transport firm and a refrigeration engineering shop. Government documents trumpet all three as unqualified successes. 'Rank and file workers have been retained and the enterprises have all increased the salaries paid to workers,' says state economist Le Dang Doanh of the Central Institute for Economic Management in one recent report. 'Thus the reality . . . is completely different from the initial worry by some workers that many workers would be made redundant after the implementation of equitisation. 'The enterprises all reported substantial progress in increasing levels of economic performance, output and export value, profits and contributions to the State budget . . .' Such words are likely to please both reformers and those with an interest in keeping an eye on protecting the working class from polarisation from Vietnam's wealthy. Mr Doanh goes further, saying the pilot programme should be broadened and work should start on guidelines to formalise buying and selling of shares to allow the market to fully evaluate the value of a company. Hanoi, however, is still to decide exactly in which sectors it can start to hive off enterprises and which are best kept for strategic reasons. Ultimately those waiting for change point to a key decision in March from the Communist Party's Politburo, the most powerful body in the country. A decision titled 'Continuing Renovation to Strengthen the Leading Role of State Enterprises' called for cadres to 'gradually and steadily implement work to equitise parts of the enterprise sector where the State does not need to retain 100 per cent of investment capital'. Many observers are confident in the long term. 'At the end of the day I'm one of the optimists and I do think there will be movement,' Mr Babson says. 'It will be noisy. I don't see it as neat, I don't see it as fast and I don't see it happening in the short term.'