* New constitution, election took steam out of unrest
* Islamist-led government still in shadow of palace
* Economic, social malaise biggest threat to stability
By Alistair Lyon
RABAT, Nov 4 Unlike other Arab leaders
challenged on the streets early last year, King Mohammed VI
swiftly reformed Morocco's constitution, held an election and
let an Islamist party lead the government.
His response smothered popular ferment, drew plaudits from
the West and seemed to set Morocco on a more democratic course,
but 20 months on it is unclear how much power has changed hands.
Le Matin, an establishment French-language daily, still
devotes its first half dozen pages to the doings of the monarch
and his advisers before the elected government gets a mention.
The Islamist prime minister, Abdelillah Benkirane, still has
his office in the vast precincts of the royal palace in Rabat.
For now, his Justice and Development Party (PJD), whose
success in an October 2011 election brought it into government
for the first time, insists political cohabitation is thriving.
"Morocco is an exception in the region," Communication
Minister Mustafa el-Khalfi told Reuters. "We have succeeded in
developing a third way between revolution and the old system of
governance: reforming within stability and unity."
Under the new constitution, King Mohammed, who bases much of
his legitimacy on his Islamic credentials as "Commander of the
Faithful" and as a descendant of the Prophet Mohammad, keeps
control of military, security and religious affairs, while
parliament legislates and the government runs the country.
"Key institutions enshrined in the constitution are coming
to life," said one Western diplomat of the reforms. "The breadth
of debate is changing. People feel part of the process."
Yet after two decades of stop-go reforms that began under
the king's late father Hassan II, not all Moroccans are
convinced that the palace has loosened its grip that much.
"The monarchy has a very strong survival instinct," said
Moroccan historian Maati Monjib. "The official tactic is divide
and rule and it has been systematic for about 400 years."
After the turmoil of last year's Arab uprisings, the PJD-led
government installed in January gained some real clout, he said.
But by August the king and his advisers felt bold enough to take
back some of their "traditional, non-constitutional powers".
The PJD may risk credibility with its Islamist base by
taking office and then finding real authority lies elsewhere, as
happened to a socialist opposition party in the 1990s.
"They haven't finished a year in power yet, but what they
have announced is not encouraging," said economist Najib Akesbi.
"They've got stuck to the regime. History is repeating itself."
Khalfi, who is also government spokesman, retorted that it
was normal for incumbent parties to lose some popularity and
that the PJD had backed the monarchy even when in opposition.
"We believe in the crucial historical role of the monarchy
to defend unity and stability and lead the necessary reforms."
Any immediate prospect of a mass uprising may have receded,
but social and economic tensions smoulder in a country with wide
income disparities and what Khalfi called decades of corruption.
He listed Morocco's other problems as unemployment, poverty,
health and illiteracy, requiring investment and good governance.
Reliant on fuel and wheat imports, the economy has suffered
from Europe's recession, which has hit tourism and transfers
from Moroccans working abroad, many in nearby Spain.
Morocco ranks 130 out of 187 countries on the U.N. human
development index and 56 percent of adults among its 32 million
people are illiterate. Food and fuel subsidies absorb about 54
billion dirhams ($6 billion) a year, or six percent of GDP.
Few dispute that the subsidies are wasteful, benefiting the
well-off more than the needy, but removing them is a political
hot potato and could prove broadly unpopular - with the poor who
are sceptical about promised cash compensation and middle-class
people who would have to pay more, as well as businesses that
have grown fat on cheap sugar, wheat flour and energy.
JUDGES TAKE TO STREETS
Marina Ottoway of the Carnegie Endowment for International
Peace suggests that the palace may be happy to let the PJD-led
government attempt its policy of phasing out the subsidies.
"If problems result from the change, consumer anger and
blame would be directed at the government while the palace could
get rid of an old problem at little risk to itself," she wrote.
Scattered unrest, mostly over economic grievances, erupts
often in Morocco. Even judges, not known for street activism,
staged a sit-in last month outside the Supreme Court, where
about 1,000 demanded more independence for the judiciary.
The mostly secular February 20 Movement, dynamo of the 2011
demonstrations, still exists, but authorities are less tolerant
of its protests since a referendum approved the constitutional
reforms. Many young activists have retreated to the Internet.
Two significant Islamist tendencies also remain outside the
political mainstream, partly for their own reasons.
Ultra-orthodox Salafis, a minority group with a growing
appeal in the deprived outskirts of big cities, are debating
whether to drop their ideological rejection of politics and
emulate their Egyptian counterparts who formed a political party
after Hosni Mubarak's overthrow and did well in an election.
Al-Adl wal Ihsan (Justice and Charity) is a formidable
broad-based movement which first backed last year's youthful
protests, but later withdrew, wary of its secular allies.
Its ageing leader, Sheikh Abdessalam Yassine, has long been
a thorn in the royal flesh, refusing to recognise the king's
status as Commander of the Faithful, demanding that he "return
what his father stole" and favouring a republic.
"They are well-organised and well-structured. They can
mobilise tens of thousands of people," the Western diplomat said
of al-Adl wal Ihsan. "If the economic crisis deepens and social
challenges are not addressed, will they step in?"
The king toured Gulf Arab states last month to drum up aid
and investment from rulers so worried by the fallout from last
year's Arab revolts that they invited distant Morocco and Jordan
to join their regional club, the Gulf Cooperation Council.
Mohammed VI, the biggest private stakeholder in Morocco's
$95 billion economy, is involved in many sectors of the economy,
from telecoms to precious metal mining, banking and cement.
This combination of political power and economic interest
compromises Morocco's stated goal of creating a competitive,
transparent economic arena, argues Akesbi, the economist.
"This monarchy, which governs, also does business, making
every outcome possible - conflicts of interest, abuses of power,
nepotism. And that's what we witness every day."
(Editing by Robin Pomeroy)