Musharraf can wait as Pakistan grapples with economy

By Simon Cameron-Moore - Analysis

ISLAMABAD (Reuters) - Too busy trying to rein in runaway inflation and a yawning current account deficit, Pakistan's new government has put the issue of how to rid itself of President Pervez Musharraf on a backburner.

After February's election stripped U.S. ally Musharraf of parliamentary support there was a froth of expectation that the unpopular president, who came to power as a general in a 1999 coup, would be driven out of office soon.

Instead, Asif Ali Zardari, the leader of the party heading the coalition formed two months ago, has opted to amend the constitution to reduce the presidency to a figurehead.

The proposed 62 changes will take months to debate, and the government will probably have to wait until Senate elections due by March 2009 to be sure of passing the package.

By then, a new U.S. administration may feel less inclined to prop up an ally who had become a diminishing asset in the war against terrorism.

"In the middle of all this, if Musharraf decides to call it a day, he'll be allowed to leave with dignity and honor," a senior adviser in Zardari's Pakistan People's Party told Reuters.

Coalition partner Nawaz Sharif, the prime minister Musharraf overthrew, is impatient to see his usurper hounded out of office by being dragged through the courts or impeached.

With that in mind, Sharif is fighting for the reinstatement of the judges Musharraf dismissed when he enforced a brief period of emergency rule late last year to shore up his presidency.

"Sharif wants to push Musharraf out. We want to ease him out," said the PPP official.

To protest against Zardari's failure to reinstate the judges quickly, Sharif this month pulled nine ministers from his party out of the cabinet, though he still supports Prime Minister Yousaf Raza Gilani's government.

Critics say Sharif has opted out of the responsibility of governance at a crucial time in order to engage in politicking, with the aim of emerging stronger once Musharraf goes.

"Essentially the house is on fire and the firemen are busy arguing about other things," said Agost Bernard, credit analyst at Standard & Poor's Ratings Services in Singapore.

S&P not only relegated the credit rating on Pakistani sovereign debt to five notches below investment grade this month, it also cut its outlook to negative from stable due to concern about the new government's ability to meet the challenges.

Former State Bank of Pakistan governor Ishrat Husain bemoaned the loss of momentum in economic growth, derailment of macro-economic stability and hiatus in investor confidence.

Husain, who was governor from 1999 to 2005, suggested policy-makers lost focus when Musharraf tried to dismiss the Supreme Court chief justice 14 months ago.