In a significant step to normalize relations with Vietnam, the United States recently established its first embassy in the Asian country since the fall of Saigon in 1975. To head the new mission, the U.S. selected Pete Peterson a former prisoner of war in Vietnam. Following a background report, Margaret Warner looks at the state of relations between the two countries with three experts on Vietnam.

MARGARET WARNER: Pete Peterson's arrival in Vietnam last Friday was a dramatic and symbolic moment. Thirty-one years ago, as a U.S. fighter pilot, he'd been shot down over North Vietnam. He spent the next seven years in Hanoi as a prisoner of war. Now, this one-time Florida congressman was returning to Hanoi as the first U.S. ambassador to Vietnam since the Vietnam War ended in 1975.

PETE PETERSON, U.S. Ambassador, Vietnam: I'm very, very pleased to be back in Hanoi once again. This is a very special day for America and for Vietnam. Today we exchange ambassadors, marking the full normalization of diplomatic relations between our two countries.

MARGARET WARNER: Among those greeting Peterson was a former North Vietnamese militia man, who 30 years ago had captured another American pilot, now-U.S. Senator John McCain.

After the Vietnam War, North and South Vietnam were united as one country under Communist rule. A decade ago it began to forsake some of its socialist economic policies for a more free market approach. This economic liberalization, which the Vietnamese call “doi moi,” included welcoming investment from abroad. The results have been dramatic. Gross Domestic Product has grown 8 percent or more every year this decade. The country's per capita income is still very low, about $250 a year, but it is three and four times that in Hanoi and Ho Chi Minh City, the former Saigon. Both cities are awash in modern consumer goods.

Some of this growth has been spurred by the foreign investment. Actual foreign money invested in Vietnam has skyrocketed from just $16 million in 1990 to $1.4 billion in 1995, and four times that much was committed to future projects that same year.

Foreign investors are attracted by Vietnam's demographics and potential for growth. Its population of 75 million makes it the 13th largest in the world. Its people are young, well-educated, and have a reputation for being highly industrious. For several years, while the Japanese, French, and others were investing in Vietnam, American business was frozen out by a post-war U.S. economic embargo. But since the embargo was lifted three years ago, the U.S. has become the sixth largest trading partner for Vietnam.

Now, the streets of Hanoi and Ho Chi Minh City bristle with signs for U.S. products and companies. Politically, however, the Vietnamese government has not liberalized much. The Communists maintain strict one-party rules, government control over the local press, and a tight lid on demonstrations and dissent.