CAIRO -- President Hosni Mubarak has launched, quietly and piecemeal over a number of months, Egypt's first major economic reform program in a decade. While the government-controlled press has lined up behind it, as expected, the rest of Egypt, and the outside world, are waiting to see whether it will take hold.

The stakes are high. The government effectively went broke last fall and the combination of falling oil prices, tourist jitters and smaller paychecks coming from Egyptians working abroad put the country on the rocks.

The only hope was a new infusion of cash from creditors and relief from the demands of paying down the country's $40 billion debt. Egypt's creditors demanded reforms and Mubarak, after a late start, has begun to deliver.

The main assault on what had become Egypt's uncontrollable economy was plotted like D-Day, because failure would have meant financial catastrophe.

On the morning of May 11, Egyptians woke up to find that the thriving black market for currency -- a fixture of neighborhood life for two decades -- had disappeared. Along with it disappeared about 200 money-changers, whom the secret police had rounded up and jailed just to make sure the rest of the black market got the message. They were shopkeepers and souvenir dealers, but the largest of them were syndicated and unlicensed traders who handled billions of dollars outside Egypt's moribund banking system.

The black market had always been the place where Egyptians could convert their foreign-earned currency to Egyptian pounds at a better rate than that offered by the banks. They also bought dollars for foreign vacations and to finance purchases abroad. When the government began going broke last summer, even the state-owned industries turned to the black market for the dollars they needed to buy raw materials. "What the government was upset about was that they had lost control," said a western economist who follows Egypt.

The free currency market, or black market, had thus come to symbolize all that Egypt's leaders could not do. Private businesses shunned the central banking system and financed up to $3 billion in annual imports by going to the money traders.

By its stern abolitionist stroke, the government effectively tried to recapture the black market and bring it back into the banks. The price was walking away from the unrealistic value Egypt's Central Bank had been enforcing for the pound. In one day, the pound fell from 1.35 to the dollar to 2.15. By acknowledging that the pound was worth less, the bank had taken the painful first step.

The price of imports for industry and consumers will shoot up as the 18-month staged devaluation takes hold. But by seizing the ground the black market had occupied, the government hopes to claim the reward: an inflow of dollars and investor confidence.

"We have a basic strength in our economy," Central Bank Director Saleh Hamed told a group of American reporters last month.

The initial reforms brought immediate results: new credit backing to Egypt from the International Monetary Fund, the World Bank and a number of creditor nations, including the United States. An IMF credit agreement was signed in mid-May and was followed by a meeting in Paris of Egypt's creditors, who have worked out various plans to defer the $7 billion to $8 billion in debt payments due this year.

During the breathing period this debt relief plan will yield, Egypt hopes to recharge the engines of its economy: oil, cotton and other agricultural production; tourism, Suez shipping and the paychecks from 4 million Egyptian workers in foreign countries.

This will be a difficult task because Egypt over the years has erected a withering array of do-nothing bureaucracies, counterproductive agricultural subsidies and tangled business disincentives. Two-thirds of its industry is state-owned and operates at a loss, with outdated machinery and underpaid workers.

"You couldn't even get a telephone call across town until we dumped $1 billion on them to install new switching equipment," said one westerner, who predicts that the telephones will stop working again when the new American equipment begins failing for lack of maintenance.

Mubarak's boosters say they think he will succeed, although a crucial test looms in coming weeks as Egyptian importers and vacationers, cut off from the traditional neighborhood currency markets, have begun to demand access to dollars. The Central Bank so far is hoarding the inflow and the secret police are still locking up all the money changers they can find.

"They have to solve this in the next couple of weeks or the black market will break out again," said one economist, noting that there "are still a lot of threats to the intelligent management" of Egypt's economic reform program.

Still, it has survived the first stage. Hotels in Cairo and Luxor have been full this season and an extravagant production of the opera "Aida" staged in its historical setting amid the temples of the Upper Nile was such a hit this May that an encore run is scheduled for the Cairo pyramids in September.

Yet with all this potential, Egypt is like a country holding its breath, on the cusp between economic decay and rebirth.

Ahead lie difficult cuts in basic subsidies for food and agriculture. Each step will have an impact on the cost of living in Egypt. The average Egyptian will be worse off until the benefits of growth trickle down.

For Mubarak, a cautious political tactician who appears dedicated to patiently rebuilding Egypt's collapsing structure of roads, sewers, farms and industry, the stakes are high. Failure could easily be catastrophic for the 50 million people who live in the Nile valley, where the currents of Islamic fundamentalism have strengthened as the quality of life has deteriorated among Egypt's masses.