VIENTIANE, LAOS -- More than 100 young people, wearing blue jeans and western-style dresses imported from neighboring Thailand, crowded the small nightclub in the state-owned Peace Hotel in the capital of Laos on a recent Saturday night and danced to the music of a local rock band.

The nightclub and the clothes are signs that Laos is loosening some of its hard-line economic and social policies. When the communists came to power 12 years ago, they shut down Vientiane's night life and sent thousands of young people suspected of having been corrupted by "decadent" western culture to reeducation camps on remote islands north of the capital.

The Peace Hotel recently reopened its nightclub in an attempt to make money in response to the government's call for state-owned enterprises to start paying their own way.

The country's communist party, the Lao People's Revolutionary Party, has introduced economic reforms since its congress in late 1986 in an attempt to spur the struggling economy of this underpopulated, landlocked country.

When the communists defeated the U.S.-backed government in Vientiane in 1975 with help from Vietnam and the Soviet Union, the new rulers moved quickly to collectivize farms, nationalize factories and shut down private traders, causing a fall in food and industrial production, shortages of consumer goods and sharply increased prices.

Since 1979, the party has slowed its march toward socialism, and the newest reforms introduced this year have brought back some capitalist practices. Companies and factories are expected to make a profit, prices are to be determined by the costs of production and the law of supply and demand, and workers are to be paid according to their productivity.

Under the new policies, private traders are again allowed to operate, and competition among trading firms is no longer taboo. Checkpoints at provincial borders have been lifted, allowing goods to move more freely around the country, and provinces can trade directly with foreign countries instead of working through the central government.

"They've taken some courageous steps, at least on paper," said one western economist who visits Laos regularly.

The impact of the reforms is evident. Many new restaurants have opened in Vientiane, and the city's morning market, which was scaled down by the communist rulers 10 years ago, has expanded across the street into an area destroyed by a massive fire earlier this year.

Construction materials, such as imported cement, nails and paint, are now on sale in Luang Prabang for the first time since the mid-1970s. Hundreds of new imported bicycles and Honda motorcycles have appeared on the streets of Pakse in recent months.

The new climate has also prompted some capitalists to invest in small-scale production. One private company in Vientiane is sewing tennis shorts for export to Canada; another is producing shirts for export through Thailand.

Industrial production, which dropped 40 percent in the early 1980s, has risen in factories where the managers have received more freedom to find raw materials and pay workers for each article produced, according to Khamphet Phengmuong, vice president of the State Planning Committee.

Reaction to the new measures is mixed. "It's almost like capitalism is coming back," one Laotian said enthusiastically.

But others are more cynical. "The new policies don't apply to me," one man complained. He said he and several friends could not get permission to set up a furniture-making cooperative. He speculated that none of them had the right party or family connections.

Government officials admit that the reforms have been implemented unevenly. Some functionaries see the reforms as a step backward in the march toward socialism and refuse to implement them. A recent Vientiane radio editorial complained that many officials "take no initiative" and "use the authority of bureaucratic centralism and arbitrariness to intimidate and repress others."

Another problem is that many of the country's best-trained administrators fled in the late 1970s, during a massive exodus by nearly one-tenth of the country's population.

The impact of the reforms is most visible in Vientiane and the other major towns along the Mekong River. Little has changed in the countryside, where about 80 percent of Laos' 3.6 million people practice subsistence farming.

Rice production, the bright spot in the Laotian economy since the government slowed the drive toward collectivization, was disrupted by a drought in the northern provinces this year.

Despite the fact that Laos' southern provinces will produce a grain surplus this year, agriculture officials estimated that northern Laos will face a shortfall of more than 200,000 tons of rice and have appealed for nearly 100,000 tons of rice from the international community.

Farmers interviewed in Champassak Province said they were reluctant to sell rice to the government because its price is less than half what they can get on the free market or in neighboring Thailand.

The government also will face problems moving the grain because the areas hardest hit by the drought have few roads, and many of these are little more than dirt trails.

The economic and cultural liberalization introduced in recent months has not been accompanied by political relaxation. Much of the secretiveness and suspicion developed during the war continues. Few journalists are allowed to visit Laos, and travel by diplomats and foreign aid workers is restricted.

"Criticism like in Vietnam is not tolerated here," one Laotian complained, referring to the increased openness with which people in Vietnam have been able to discuss problems since Nguyen Van Linh was elected chief of the Vietnamese Communist Party late last year. The Laotian said one of his friends was recently sent to a reeducation camp because the friend complained too much that Laos still does not have a constitution, a dozen years after the communists came to power.

Amnesty International, the London-based human rights group, has reported that about 130 persons were released this year from reeducation camps in northeastern Laos, where they had been held without charges or trials since the end of the war.

A lieutenant from the defeated Royal Lao army who was recently released after 10 years in a reeducation camp in Attopeu Province in the south said 28 out of 350 people arrested with him in 1975 remain in detention.

Western diplomats report that hundreds, and perhaps thousands, of others are still being held in camps around the country. Laotians complain people are still arrested and held for months without charge.