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* President expected to step down in two years
* No consensus in ruling elite over favoured successor
* Discord holding up appointment of new prime minister
* Breakdown in elite would threaten stability
By Lamine Chikhi
ALGIERS, June 20 Algeria's government has been paralysed by arguments over who should be anointed as favourite to be the next president, exposing divisions within the ruling elite that could shatter the country's fragile stability
The cohesion and control with which Algeria's establishment runs the energy exporting former French colony has kept it steady even as its neighbours were buffeted by the "Arab Spring" upheavals over the past 18 months.
A breakdown of that cohesion could re-ignite a conflict with Islamist militants, send ripples of instability through a wider region already in turmoil after the Arab Spring, and potentially jeopardise the Algerian natural gas exports on which Europe relies.
The most visible sign of the discord within the ruling elite is that President Abdelaziz Bouteflika has not appointed a prime minister over a month after he was expected to announce the decision.
According to convention in Algeria, Prime Minister Ahmed Ouyahia should have stepped down following a parliamentary election that took place on May 10, after which Bouteflika has to invite Ouyahia back or name a new person for the job. None of this has happened.
Few outsiders can claim to know what is going on inside Algeria's system of rule, one of the most opaque and impenetrable in the world. The president's office has given no indication of why there is a delay.
The best guess is that rival clans and interest groups are fighting it out to each have their own candidate installed as favourite to take over from 75-year-old Bouteflika when his third and probably final term ends two years from now.
Indications are that the establishment is broadly split into two camps. One group wants to build on Bouteflika's legacy and reach out to the kind of moderate Islamists who, in other parts of the region, have come to power since the Arab Spring.
The rival camp wants a clean break with Bouteflika, is vehemently secular, and mistrusts the Islamists.
The choice of prime minister is tied up in this rivalry because if any one of the contenders for the presidency is given the prime minister's job, it will be clear that they are - at least for now - Bouteflika's anointed successor.
"Who will replace Bouteflika is now the top issue in Algeria, and it explains why there is a delay in designating a new government," analyst Farid Ferrahi said. "Each decision will have an impact on the presidential election."
Algeria has been remarkable for the mostly placid way it has ridden out the Arab Spring upheavals.
With huge cash reserves from exporting oil and gas, it has been able to use public spending to placate social unrest. Opposition is weak. And there is little appetite for radical change as memories are still raw of the conflict in the 1990s, in which an estimated 200,000 people were killed.
Instead, the real challenge for Algeria is whether the elite that has held power since independence from France 50 years ago can keep from tearing itself apart over the post-Bouteflika succession in two years' time.
"I think 2014 is actually the potential flashpoint in terms of political stability in Algeria ... I am thinking more about struggles and conflicts within the (system)," Riccardo Fabiani, North Africa analyst with Eurasia Group, said.
Under Algeria's constitution, power is held by a democratically elected president and parliament.
Yet diplomats and analysts say the country is actually ruled by an entity commonly known by the French word "le pouvoir", or "the power" - a consortium of senior officials who meet behind closed doors.
Bouteflika has considerable influence within "le pouvoir", say analysts, but he shares it with other, unelected officials, in particular those from the powerful security forces.
At times the system's cohesion falters, something which appears to be happening now over Bouteflika's succession.
"Consensus ... is needed to achieve smooth change, but when there is no consensus, the system stops working as is the case right now," said Mohamed Lagab, analyst and teacher of political science at Algiers' University. "Everything is frozen from the top to the bottom of the state."
People with knowledge of what goes on inside "le pouvoir" cite a list of people in the running for the presidency.
The names include:
- Abdelaziz Belkhadem. A Bouteflika ally and the head of the National Liberation Front, traditionally the ruling party. It won last month's parliamentary election. He would open up the economy to investors and reach out to Islamists, an influential group. Some in the secularist elite think his closeness to Islamists makes him suspect, and they would prefer a cleaner break from Bouteflika. He could though emerge as a compromise candidate because he straddles the Islamist and secularist camps.
- Said Bouteflika. The president's younger brother. If he became president it would be a continuation of the incumbent's rule. That is resisted by many in the elite, who think a family dynasty is wrong and that, anyway, it is time for a change.
- Amar Ghoul. A moderate Islamist who until last month was minister of public works. He is close to the Bouteflika camp. His selection would signal Algeria is coming into line with the trend in the region for Islamists to gain power. For many in the elite, choosing an Islamist though would be too much to stomach.
- Ahmed Ouyahia. Many in "le pouvoir" believe the serving prime minister's push for economic nationalism has failed to create jobs, and it is time for him to go. He hinted at the debate going on behind the scenes when he said on July 2: "I know I annoy people, that's the way it is."
- An outsider. At times, the elite drafts in a presidential candidate from outside the mainstream to show it is ready to embrace reform. This could be Ahmed Benbitour, a technocrat who resigned as prime minister in 2000 after clashing with Bouteflika. Another option could be Mouloud Hamrouche, also a former prime minister who, his supporters say, was fired in 1991 because he wanted to reform the economy. Both are secularists.
The elite will have to end its wrangling over the succession if it is to handle a series of big challenges coming its way.
The oil price has fallen below $100 a barrel, alarming for a country where energy accounts for 97 percent of exports and which needs a high price to cover its free-spending policies. Riots and strikes break out periodically, evidence a large chunk of the population is disillusioned with its rulers.
Yet the dilemma of how to make the transition to the next president is likely to preoccupy "le pouvoir" for some time.
"It is very difficult to foresee what will happen next, but we can already say that the race for the presidential election has started in Algeria," said Ferrahi, the analyst. (Editing by Christian Lowe and Alison Williams)