Aug 20 (Reuters) - Leaders of nuclear-armed Pakistan's coalition government are struggling to resolve immediate issues after President Pervez Musharraf's resignation, raising questions about their ability to meet longer-term challenges, Musharraf announced his resignation on Monday. He came to power in a 1999 coup, anchoring Pakistan's alliance with the United States and promoting an investor-friendly environment that produced good growth and surging stocks until this year. Following are some of the political, economic and diplomatic implications of his resignation. INTERNAL POLITICS * Opposition to Musharraf had bonded rival parties in the coalition government. Since his departure they have been unable to come to quick agreement on several major issues. * The Pakistan People's Party of assassinated former prime minister Benazir Bhutto leads the coalition, with former prime minister Nawaz Sharif's Pakistan Muslim League (Nawaz) its chief partner. The two main civilian parties are old rivals and despite recent cooperation, will compete in the next election. SECURITY * The coalition government has vowed full commitment to the campaign against violent militancy. Despite questions over its policy of trying to negotiate with militants, recent operations in the northwest should have reassured Washington and other allies the government will at least match Musharraf's security efforts, although pressure to do even more is likely to continue. * The military plays a dominant role in security policy, and its cooperation with the new government has been smooth. * But critics say political wrangling distracts the government's attention from being as effective in controlling militants as it should be. * Another problem is the military's controversial Inter-Services Intelligence agency (ISI), seen by many analysts and some foreign countries as having within it rogue elements. They have been blamed for everything from internal assassinations and bombings in Afghanistan to encouraging militants. An initial attempt by the government to rein it in was aborted under murky circumstances. FOREIGN RELATIONS * The United States, despite its close friendship with Musharraf, said Pakistan's leadership was a Pakistani matter. Since Musharraf's resignation U.S. President George W. Bush has said he looks forward to working with Pakistan on the economic, political and security challenges it faces. Washington can be expected to press the coalition government to take a firm line to stop militancy, in particular attacks into Afghanistan. * India enjoyed some of its best diplomatic relations with Pakistan in decades under Musharraf. While the new government is committed to the peace process with India, launched under Musharraf in 2004, India's fear is that a weak civilian government in Islamabad will not have the same muscle Musharraf had over the army and the powerful military spy agency, which India suspects has a hand in most attacks on its soil. ECONOMY * The government has vowed to turn its attention to economic problems after Musharraf leaves. Inflation is at its highest in years, and trade and fiscal deficits are widening. High oil prices have depleted foreign reserves while the rupee has lost about a quarter of its value this year. * An end to the uncertainty over Musharraf eased investor worries and the main stock index gained on both Monday and Tuesday. However, on Wednesday shares lost ground. Analysts said the inability of the coalition to quickly resolve issues like Musharraf's replacement and the fate of the judges had investors doubting its ability to tackle economic problems. THE NEXT PRESIDENT * Who becomes next president could depend on the powers the position retains. Musharraf had authority to dismiss parliament and make top military and judicial appointments. Coalition partners vow to strip the presidency of those powers and make it a largely ceremonial post. However, analysts say Bhutto's widower, Asif Ali Zardari, might want the job, in which case he will want to keep the powers. Zardari has also suggested the next president might be a woman. Newspapers have speculated an ethnic Pashtun leader, Asfandayr Wali Khan, whose liberal party is part of the coalition, could get the job. The president is elected by the four provincial assemblies and the national parliament. (Writing by Jerry Norton; Editing by Robert Birsel)
Lawyers gather to celebrate President Pervez Musharraf's resignation in Karachi August 19, 2008. Leaders of Pakistan's coalition government set about tackling pressing economic and security problems on Tuesday as a bomb ...
