President Hosni Mubarak's decision to transfer power to his deputy and not step down will likely fuel the fears of international investors who had sought a clear end to the more than two weeks of protests that have plunged Egypt into uncertainty.
The announcement late Thursday by the embattled Egyptian leader fell far short of the demands of protesters who had been rallying by the tens of thousands for the past 17 days in hopes of driving Mubarak and his regime from power.
The tug-of-war between the protesters and Mubarak has rattled international investors, prompting an exodus of foreign funds and raising worries that the scheduled re-launch of the country's stock market on Feb. 13, after a two-week closure, would result in a crash.
Mubarak's speech, during which he had been widely expected to step down, was sure to inject new concerns into an already jittery market.
"I believe this man is going to destroy this poor economy," said John Sfakianakis, chief economist with the Riyadh, Saudi Arabia-based Banque Saudi Fransi. "The statement he made was completely, completely, the opposite of what the international investor community was anticipating."
After tensions had eased over the past week, he said, "we're going back to the worst case scenario where international investors are going to sell off."
The news comes at a difficult time for Egypt.
The government was already scrambling to raise cash through a second Treasury bill auction in three days. The 3.5 billion pound ($595 million) T-bill offering was a bid to shore up investor confidence in the country after the currency dropped days earlier to its lowest level in six years and the stock market, before shutting down Jan. 28, lost almost 17 percent in two consecutive sessions.
Wael Ziada, head of Egypt research at the Cairo-based investment bank EFG-Hermes, said Mubarak's announcement triggered an "unbelievable" amount of rage in Cairo's Tahrir Square, the epicenter of the protests. Hours earlier, Ziada had predicted that the market would decline, but not crash.
"I don't see a near-term end to this," he said. "People are increasing in numbers, and they're not going to leave tonight."
Even before the military announced earlier Thursday on national television that it had stepped in to "safeguard the country" and assured protesters that Mubarak would meet their demands, there was at least a glimmer of hope Egypt would be able to overcome the economic challenges that had begun to mount since the protests began on Jan. 25.
Mubarak's comments appeared to shatter that hope and further raised the hurdles that his government, or any transitional administration, would have had to overcome. Egypt was struggling with poverty, low wages, rampant corruption and a weak industrial base even before the protests sent the economy reeling.
Egyptian officials "need to understand that the impact of such statements is far greater than the Egyptian economy's ability to withstand such shocks," said Sfakianakis.
Stock market officials, ahead of the exchange's planned reopening on Sunday, had instituted new safeguards to halt trading in the broader EGX100 index if changes of more than 5 and 10 percent materialize.
Even so, it remained anyone's guess how steep the drop might be.
The reason for the uncertainty was the fluidity of the developments over the past 17 days.
Demonstrations that began with the tens of thousands in Cairo turned into protests of more than a quarter-million people demanding Mubarak's ouster.
As the political developments escalated, so too did the protests.
Thousands of workers from virtually all sectors have gone on strike, arguing that the largely stagnant salaries that inch up by a few dollars a month are no match for surging food or housing prices. These are complaints that no government — be it led by Mubarak or someone else — would be able to solve immediately.
"I've been working for 12 years, and my salary is 320 pounds ($55)," said Gamal Ahmed Abdullah, a 37-year-old public transport worker who has three children and says he pays 250 pounds ($42) per month in rent.
"I work part time as a cleaner," he said. His main complaint is echoed by thousands of his colleagues: "I want to live."
Roughly 40 percent of the country's population lives below or just above what the World Bank says is a poverty line of $2 per day.
Among those on strike were workers at companies that provide support services for the Suez Canal. While traffic through the canal has yet to be affected, worries that the key artery could be disrupted have helped widen the spread between the Brent crude oil futures in London and the U.S. benchmark in New York to more than $11 per barrel.
There would be no quick fixes, despite the government's promise to boost salaries and pensions of civil service workers and retirees by 15 percent, and to provide compensation through an $890 million fund for business owners harmed by the protests, among other steps.
The initial beating sustained by the economy as tourists fled in the first days of the protests helped pull the Egyptian pound down to six-year lows of almost 6 pounds to the dollar. The Central Bank's move to pump dollars into the system to ensure bank liquidity helped reverse the decline. But the pound dropped again Thursday, trading at 5.880 to the U.S. currency.
That devaluation threatens to undercut any efforts to rein in food inflation, which runs at 17 percent per year and has been one of the cornerstones of the anger on Egypt's streets.
Sfakianakis said he would not be surprised if the currency traders began to drag the pound down to 7 pounds per dollar — well below the 6 pounds to the dollar level that was the previous low in January 2005.
Even if the Central Bank intervenes again to boost the currency, as it has indicated it is willing to do, the government faces a host of other challenges.
Downgrades in its ratings and outlook by the three major international ratings agencies are likely to boost the borrowing costs for the government and further sound alarms for potential investors. The ramped-up spending to appease the irate population, meanwhile, will mean that the government will miss by a mile its budget targets and stall its deficit-cutting efforts.
The unrest is also widely expected to batter the country's key sources of foreign revenue: tourism, the Suez Canal, remittances from Egyptians abroad and foreign direct investment.
The rioting, looting, arson and general lawlessness that gripped Cairo in the first days of the protest drove at least 160,000 foreign tourists from Egypt through the capital's airport.
Egyptian officials have said the unrest has already cost the country $1 billion to $1.5 billion in tourism revenue. Economists consider those figures inflated but agree that the damage will be severe without a quick resolution to Egypt's political crisis.
EFG-Hermes' Ziada said that if Egypt isn't stable by June, "You're going to get the worst hit in a decline in investment and tourism," with foreign investments "likely to go down to near zero in 2011."
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