Zardari takes Pakistan's helm in mid-storm

By Simon Cameron-Moore - Analysis

ISLAMABAD (Reuters) - With Pakistan's economy tanking and a Taliban insurgency raging, new president Asif Ali Zardari must choose if the time is right to risk more instability by entering a confrontation with old rival Nawaz Sharif.

A new power struggle is about the last thing the West would want in a nuclear-armed Muslim state whose backing is central to defeating al Qaeda and helping NATO stabilize Afghanistan.

Zardari and Sharif formed a coalition this year aimed at booting former army chief Pervez Musharraf out of the presidency, but after accomplishing that last month, their alliance collapsed and Sharif became leader of the opposition.

Sharif held the premiership twice in the 1990s, as did Zardari's late wife, Benazir Bhutto, when their rivalry undermined democracy to a point that many people welcomed Musharraf's coup in 1999.

Analysts fear vendettas from the past could haunt Pakistan.

If Zardari and others "have revenge in mind, then the game is lost before it is begun", concluded Ardeshir Cowasjee, one of Pakistan's most venerable columnists, in the Dawn newspaper on Sunday, a day after Zardari's election.

International lenders won't like giving billions of dollars

to keep Pakistan afloat if they fear political battles will divert the government from putting finances in order.

"We don't care who becomes the president," Muhammad Hafiz, 70, told Reuters as he walked past a rally of celebrating Zardari supporters in the southern city of Hyderabad.

"What we care about is security problems, and rising prices."

Inflation is running at nearly 25 percent, and government borrowing needs to be cut drastically.

Authorities have imposed limits to prevent a freefall in a stock market that has plunged 40 percent since peaking in April, the rupee is at all-time lows, and foreign currency reserves are so low, with $5.5 billion in central bank coffers, that the international bond market has priced in a possible default.

Ahsan Chishti, head of international institutional sales at Karachi-based brokerage house BMA Capital Ltd., saw a chance of better decision-making, with a president and a prime minister from the same party, but the right steps had to be taken quickly.

"Broader challenges will have to be subverted without delay for any sustainable market recovery," Chishti said.

PUNJAB BATTLEGROUND