SHORTLY after President Ronald Reagan entered the White House in 1981, Vietnam offered to sell 57 alleged American prisoners of war for hard cash - and US recognition of the communist victory six years earlier. Among those rejecting the deal was Secretary of State Alexander Haig, who was reportedly less interested in the murky issue of MIAs than the effect their return might have on other people's careers. ''This PoW thing is a can of worms. If it's opened up, a lot of people could get hurt,'' he confided to another senior cabinet official. After 18 years of US economic embargo against Vietnam, many observers believe it is the festering worms deep inside the defence and political establishments on both sides that hinder the relatively simple exercise of normalising relations between Hanoi and Washington. Far from being a humanitarian matter, the uneasy standoff that has in effect paralysed US policy in Indochina since the fall of Saigon is seen as a reluctance to confront a legacy of miscalculation - including the failure to rein in a renegade American intelligence community. ''What started as possibly an error of judgment, or an act of political expediency, grew with the passing years into a conviction that national security would be hurt by the disclosure that US intelligence capabilities . . . had failed to serve the men who fight,'' wrote Monika Jensen-Stevenson and William Stevenson in their recent book Kiss The Boys Goodbye. O N the Vietnamese side, the issue has been exploited for a political worth that long ago transcended the human element involved, turning boxes of bones into war trophies that could be traded for development aid. The link between reparations and the return of PoW remains, notably Washington's failure to help rebuild a devastated Vietnam, lies at the heart of difficult relations between the two countries. Articles 20 and 21 of the peace accord signed in Paris in 1973 pledged that the US would ''contribute to healing the wounds of war and to post-war reconstruction''. The premise of buying back PoWs - either dead or alive - dated back to a secretive French policy of paying compensation to secure the release of soldiers after the defeat at Dien Bien Phu. Former Vietnamese officers told a US select committee in 1976 that200 Foreign Legion soldiers had been freed by 1968, 14 years after France's withdrawal. ''The communists called them 'pearls', trinkets to be delved out at intervals for cash or political capital, whenever it was needed,'' said a former diplomat who was based in Paris in the late 1950s. In a letter to Prime Minister Pham Van Dong shortly before the 1973 peace treaty was signed, President Richard Nixon promised US$3.5 billion in aid money, apparently in exchange for live prisoners of war. The deal lapsed after Watergate. When the letter was made public three years later, Congress passed a resolution blocking aid in retaliation for the alleged mistreatment of returned PoWs. Hanoi reacted with fury to what it saw as ''broken promises'' and demanded the implementation of the accords, ''specifically article 21 dealing with American reconstruction aid to Vietnam in exchange for PoW/ MIA information''. The congressional resolution, made during the Carter era was to set the tone for increasingly frosty relations over the next decade. Washington's new position was that the question of recognition of Vietnam should not be linked to the unresolved fate of PoWs. It did, however, agree to non-government aid for war victims to meet the US interpretation of ''healing the wounds''. ''For the first five years, the Vietnamese repeatedly promised more co-operation than they delivered. Despite verbal agreements to separate humanitarian issues from political ones, the Vietnamese have often tied pledges of PoW/MIA co-operation to political questions,'' the Defence Department stated in a 1990 report on the MIAs. But according to former intelligence officers who served in Vietnam, there was another, more insidious reason for the impasse. A clandestine unit called the Special Operations Group (SOG) started launching raids into Indochina by mid-1973, and was active until the communist victory in Saigon in 1975. Adapted from an assassination team set up in 1958 for the use of South Vietnam's government against political rivals, it was reportedly run by the Central Intelligence Agency (CIA) using drug money laundered through the failed Nugan Hand merchant bank inAustralia - and later, an investment firm in Hawaii. ''From what came out in the royal commissions in Australia, it would seem Nugan Hand was the prime financial lifeline that enabled disenchanted and vehemently anti-communist intelligence people to continue the war on an unofficial level,'' said the former diplomat. ''There's no evidence the US authorities knew anything about this at the time. But it would not have helped efforts to resolve the MIA question.'' Some intelligence observers have suggested the SOG raids were a calculated attempt by right-wingers opposed to the peace treaty to scuttle any efforts at reconciliation with Hanoi. Families of SOG operatives testified in recently declassified congressional hearings that when some failed to return, their names were added to earlier lists of missing servicemen in a deliberate cover-up. Publicising the operations would have exposed serious violations of the Paris peace accord, and the involvement of US intelligence agencies in other covert infiltrations in Laos and Vietnam which were still being launched as late as the mid-1980s. The Pentagon, which had been estranged from the CIA long before the war ended, and had no apparent involvement with SOG, says field searches for missing servicemen officially ended in December 1973, when a US soldier was killed in an ambush by communist forces. The only ''sanctioned'' foray into Indochina took place in 1981, when the National Security Council arranged a failed reconnaissance mission to Laos after the apparent detection of US distress signals. According to a Wall Street Journal report, Hanoi had earlier offered to sell 57 US prisoners to Washington for US$4 billion. REAGAN administration officials opposed the deal because it would appear as blackmail, though National Security adviser Richard Allen, who devised the reconnaissance mission, told family groups of ''my firm belief that live PoWs are being held in Indochina.'' The abortive raid ended military efforts to secure the release of ''live'' MIAs and led to the present policy of neither confirming nor denying the existence of MIAs. For its part, Vietnam, which began classifying captured airmen as war criminals from 1966, has been accused of playing the MIAs affair out for its full political value. ''Hanoi was content to use the issue as a lever, an irritant in Washington's international relations, until the Soviet aid money ran out in 1991. Then it had to start thinking about how to resolve it,'' said a diplomat. The Defence Department charges that the Vietnamese military, which has the only access to the personal effects of missing servicemen, has cynically played on the emotions of relatives by leaking fake IDs. ''Years of investigation and analysis have shown that the dog tag reports have been instigated by elements of Vietnam's government in an effort to influence and exploit the PoW/ MIA issue,'' it claimed in the MIA Hanoi bulletin.