On Jan. 3, Egypt's fast-talking economics minister, Mustafa Said, called a press conference to announce yet another "reform" in the country's eight-tier exchange-rate system that underpins the chaotic economy here with a pound valued anywhere from .40 to 1.36 to the dollar.

This time, he explained to a highly skeptical audience, Egypt was launching a floating exchange rate to deal with the rapacious illegal money dealers who have been handling $3 billion to $4 billion yearly on the black market.

Two days later, the new rate, to be fixed daily by a committee of bankers, began at 1.24 pounds to the dollar, high enough, the government hoped, to attract those billions back into the dollar-short regular banking system.

Some skeptics dubbed it another Egyptian exercise, as one said, in practicing economics "through the looking glass with Alice and her friends." But another hailed the new system as "a very important step toward adopting a real market exchange rate" and a symbol of the government's apparent determination to deal seriously, at last, with the country's runaway economic problems.

For three years, the Egyptian government had watched helplessly as the gap between its fixed pound-to-dollar rate and the "free-market" rate widened into a chasm, and as more and more business was done in dollars outside the state-controlled banking system. The government began to fear that its control over the economy was slipping away.

Western embassies, business leaders and investors had come to see the exchange rate issue as a key indicator of the government's ability to deal with the realities of the economic morass here.

A series of half measures and sidesteps that fooled nobody had by last fall resulted in Egypt trading on the basis of eight exchange rates, according to U.S. Embassy calculations. A thriving black market emerged that even the government had come to call "the free market."

Egypt's failure year after year to confront its worsening economic and social problems has had a major impact on western and even Arab willingness to make significant long-term investments here. Indicative of this lack of confidence has been the attitude of American banks and businesses.

While the U.S. government pumped nearly $10 billion in economic assistance into Egypt between 1975 and mid-1984, American companies have invested only $61 million.

Doubts about the long-term, or even the medium-term, stability of Egypt were reflected in the assessment of an American banker in an interview:

"It's fair to say that over five years my bank has become more pessimistic. We no longer make three-to-five-year loans unless there is an outside guarantee. This is due one-half to growing American bank conservatism and one-half to internal factors here; nobody can see how they are going to muddle through. The medium-term horizon is clouded."

The gathering clouds on that horizon now appear to include a drop in world oil prices, continuing stagnation in Suez Canal and tourism earnings and a decline in remittances from Egyptians working in other Arab countries, due to generally harder economic times now that the oil boom is over.

Last year, Egypt collected $2.8 billion in oil revenues and $3.4 billion in remittances, its two major sources of foreign exchange. By comparison, industrial and agricultural exports earned it only $1 billion.

Workers traditionally have used the black-market exchange and sent directly to their homes most of their estimated $6 billion to $10 billion in annual remittances because of better exchange rates and less red tape. The government is counting on its new, more attractive rate to curb this practice, hoping thereby to offset the expected fall in oil revenues.

It is still too early to tell whether the latest changes will work. Three weeks after the move, Egypt's government was still working feverishly with foreign bankers and investors to straighten out the new confusion over doing business here.

Entangled in a maze of stultifying and ever-changing regulations, costly subsidies and unreal prices, Egypt's mixed socialist-capitalist economy continues to lurch from one "reform" to another as the overwhelmed government seeks ways to cut through the bureaucracy and backwardness blocking basic changes.

The direction of economic policy here has been blurred for years because of the government's frequent reluctance to say what it really is up to for fear of provoking opposition or even riots.

The latest change was no different. While the pound's real value effectively has been cut by half, from .83 pounds to the dollar to about 1.25, officials are still insisting that the new system does not constitute a "devaluation," which many analysts considered long overdue.

Prime Minister Kamal Hassan Ali termed the new rate "an allowance," while Economics Minister Said argued before the foreign press club that it was actually a "reevaluation" upward since the pound had gained three to five piasters on the dollar in the free market. There are 100 piasters to the pound.

The new measure, as it turned out, has had a big impact on the economy. It affected not only letters of credit for the country's $9 billion of imports, which can only be bought now with pounds, but the fate of 20 to 25 "branch banks" of western firms suddenly threatened with going out of business. This is because they are not authorized to deal in the local currency and letters of credit are their stock in trade.

It is hard, analysts say, to judge whether the new system of a semifloating pound marks a step forward, backward or to the side in governmental efforts to meet mounting foreign and domestic pressures for reform. Foreign trade has been crippled because letters of credit have become harder than ever to obtain, at least temporarily.

"There is not a lot of business being done these days," conceded one western economist who says he thinks it was a step forward nonetheless. "It's still all unsettled."

While officials from Ali on down tout the new system as major progress, Hassan Beblawi, chairman of the new Egyptian Export Bank, said it was "maybe a step backwards" and a new ploy by the state to regain a monopoly over foreign trade.

The government, which is accustomed to calling all the shots, has been acting in other areas as well to reestablish its slipping control over the fast-expanding economy in the face of an increasingly aggressive private sector.

Last October, for example, it moved to close down lucrative foreign trade by private "express mail services" such as DHL. These international couriers had stepped in to fill a vacuum left by the inability of Egypt's postal service to deliver mail with certainty.

The Cairo central post office suddenly seized hundreds of parcels of courier mail, causing pandemonium for the companies that had come to rely on these services. It then set up its own "international express mail" service at half the price -- and half the speed.

For a decade now, Egyptian officialdom has been in an agonizing uphill battle to square its antiquated, highly subsidized socialist economy -- the main domestic legacy of the 1952 revolution led by Gamal Abdel Nasser -- with Sadat's "open-door policy" redirecting the country in the opposite direction.

The open-door policy, launched in 1974, has sought to encourage free enterprise at home and investment from abroad. This has exposed Egypt's economy increasingly to the harsh realities of the world economic order -- and to a silent war between the dominant state sector and the expanding private one.

Today, about one-third of all industrial output is accounted for by the private sector, up 10 percent from a decade ago. Agricultural and service industries also are mostly in private hands now.

The first serious attempt to deal with the resulting clash over costs, prices and subsidies between the private and state sectors came in 1977 when Sadat tried to cut back sharply on subsidies for food prices. The resulting price increases touched off widespread rioting here and in Alexandria.

That experience left an indelible impression on the national psyche and struck fear into would-be economic reformers here.

Sadat halted all serious reform efforts after the 1977 riots and government subsidies continued mounting to the point that today the cost is threatening to break the central bank. Food subsidies this year are estimated at just under $3 billion and those for electricity and oil at $4 billion or more in a current government budget of about $22 billion.

Energy prices average less than one-fifth of the world market prices, according to the U.S. Embassy.

The result has been an economy in which farmers feed bread instead of fodder to their cattle because it is cheaper, and buy cheap flour from the city for their village bakeries rather than growing wheat themselves. It is an economy where Egyptians can still eat lunch on a dime, buy gasoline for 43 cents a gallon and ride a bus from one end of Cairo to the other for about 5 cents.

Since taking office in October 1981, Mubarak has cast around for the best advice available, held several conferences of intellectuals, called upon the universities and opposition parties to make proposals, changed economic teams three times and studied every problem exhaustively.

However, former prime minister Fuad Mohieddin, even more sensitive to political dangers than is the cautious president, blocked anything from happening before last May's parliamentary elections.

The government did make use of the state-directed press to educate the public about the size and seriousness of the country's economic chaos, hoping thereby to win support, or at least tolerance, for price increases.

Prime Minister Ali, for example, warned Egyptians that rampant house-building, and hence brick-making, was eating away the narrow strip of green land along the Nile. If the soil continues to disappear at the present rate, he cautioned, "Egypt will lose all its arable land in 10 years."

Similarly, he warned that if the current 15 percent annual increase in gasoline consumption continues, "in seven years we shall consume our entire production and nothing will be left to export."

Mubarak warned last March that if something is not done to limit population growth, which adds 1.2 million Egyptians every year, "we will have terrible famine, unemployment and terrorism."

Essentially, the picture Mubarak and Ali have drawn is of a self-indulgent nation with no sense of discipline, using up all its most vital resources. Egypt, they say, is consuming itself to death.

This fall, after three years of discussion, the first signs of action began to appear. Prices quietly started going up for cigarettes, bread and other subsidized items. But the first increases appeared awkwardly timed, coinciding with an increased deduction in worker paychecks for pensions that accentuated the sense of a squeeze.

This led some analysts to observe that the left hand of the government apparently did not know what the right hand was up to.

In any case, one strong protest, in the mill town of Kafr Dauwar, near Alexandria, was all it took to halt the process and persuade Mubarak to roll back some price increases.

Now, however, the government is preparing for another big push, with the ultimate aim, according to Ali, of revamping the dual economy and putting the long-feuding state and private sectors on an equal footing -- both obliged to deal with real-world prices and costs.

Subsidies, according to Ali, are to be reduced sharply on many staples such as bread, electricity and oil to curb the expanding government deficit. Automobile gasoline for example, which now costs 15 piasters a liter (about 45 cents a gallon), is expected to go to 20 or 25 piasters -- still well under the world price of about 32 piasters.

The one-penny flat bread, the staple of the poorest classes, is slowly being phased out to make way for a two-penny version -- a change that Ali claims will save the government more than $700 million yearly.

The price of electricity reportedly is to be increased 5 to 25 percent, depending on the amount used, with the biggest consumers paying the most.

The government is proceeding gradually and by stealth in introducing price increases, often without saying anything to avoid stirring emotions.

For example, new blue-and-white buses have begun to appear on Cairo streets, charging 10 piasters a ride. The old, battered red-and-white ones costing 5 piasters are still rumbling about, but gradually they are expected to be retired, doubling the price for everybody.

Similarly, the hours of television, a state monopoly here, are being cut to help reduce consumption of household electricity by television watchers. As of Jan. 1, the two channels were cut back by two to three hours, starting most days now at 2 p.m. and ending at 11:30 p.m. The government is talking privately about trying to reduce television time to only six hours in the evening.

Whether all these careful plans will again be waylaid by strikes and riots remains to be seen.

"What needs to happen is the demonstration effect of getting away with price increases," said one western economist. "If they get away with them in political terms, then you will get an accelerated pace and lose fear of rioting in the streets."

"It may take five years to do it -- but you could have a snowball effect before and go faster," he added.

In any case, the government of Hosni Mubarak stands poised to launch major price increases and reforms that finally could change the face of the economic landscape here. Most outside economists warn that it has little choice since time and money are fast running out.

NEXT: Social upheaval