"The most important development in the history of the food industry," is how a Wall Street analyst once described the chemical with the bland name "olestra."

Just imagine - fat-free french fries, fat-free pie crusts. It would be a dieter's dream come true.And a dream as well, for stockholders in Procter & Gamble, which markets olestra and anticipates a multibillion-dollar business if the Food and Drug Administration approves it shortly for use in snack foods and ultimately fast foods, shortening and other products.

As someone who cares about the epidemic of obesity in this country, I fervently wish olestra lived up to its marketing hype as a safe fat substitute. Unfortunately, olestra is too good to be true. The dieter's dream is actually a nutritional nightmare.

Since 1968, P&G officials have been talking about olestra, which its scientists discovered when they were trying to figure out, ironically, how to squeeze more calories into a premature infant's diet. They came up with sucrose polyester, an oily synthetic material made from table sugar and fatty acids. The resulting molecule is so large that intestinal enzymes and bacteria can't digest it.

However, the fact that olestra is oily portends one of its problems: It captures and eliminates valuable fat-soluble nutrients obtained from other foods in the diet. P&G acknowledged that problem early on and first proposed adding vitamin E to olestra, then said it would add back vitamins A and E. Now the company recognizes that the problem is bigger and says it will add back all four fat soluble vitamins: A, D, E and K.

But olestra also reduces the absorption of fat soluble carotenoids, which many researchers believe may prevent cancer and heart disease. Moreover, eye experts believe that two carotenoids - lutien and zeaxanthin - help prevent macular degeneration, the most common cause of old-age-related blindness.

In P&G's own studies, the amount of olestra that would be present in just one ounce of potato chips, eaten daily, reduced overall blood levels of carotenoids by 50 percent.

Referring to this carotenoid-depleting effect, Dr. Walter Willett, chairman of Harvard's nutritional department, commented: "The fact Procter & Gamble wishes to proceed with the introduction of olestra into the U.S diet is appalling."

Willett has been joined by more than two dozen other leading nutritional researchers in opposing its approval.

Olestra's effect on nutrients is insidious: invisible, imperceptible and long-term. More apparent are olestra's gas-tro-in-tes-tinal effects. Olestra wreaks havoc in the intestines.

The least polite thing to talk about is what P&G has dubbed "anal leakage" - the tendency for olestra to seep out of the body and stain underwear. Anal leakage and other types of underwear staining are caused by olestra formulations likely to be marketed.