Economy

Musharraf's government is pinning substantial hopes for containing Islamic opposition and popular discontent on improving living standards. Held back by a bureaucratic straitjacket and poor infrastructure, Pakistani business has until recently been left in the dust by more competitive regional economies. That is beginning to change following the appointment of former Citibank executive Shaukat Aziz as Prime Minister. In 2005, Pakistan registered one of the fastest growth rates in the world (8.4 percent) as red tape was cut and foreign investment attracted. Some Pakistani expatriates are returning to invest at home, less out of a sense of patriotic duty than because of new opportunities.

There are massive challenges. Trade negotiations with India proceed at glacial pace. Most trade is still indirect through Dubai, and a visit last year to the only road crossing open for trade (at Wagah) revealed nothing more than a few truck loads of Indian potatoes and garlic crossing the border. Potentially, an open trading relationship with India could bring capital and markets to Pakistan, but not at this rate.

Pakistan has to sustain and learn to handle high economic growth if is to meet the challenge of a young and increasingly urbanized population, many of whom are without regular work. In the interest of transparency, the government has to tackle the fabulous perks enjoyed by the military and its interests in the commercial and agricultural sectors. Unless handled astutely, economic growth could bring about as many problems as it solves, accelerating the rush to the cities and the growth of an underemployed, unskilled "proletariat" exposed to but unable to attain wealth. Above all, massive investment and political resources need to be plowed into overhauling education, where the curriculum is dominated by religious education with little vocational instruction

Succession

This is the greatest near-term imponderable in Pakistan. Musharraf has avoided grooming a successor and despite multiple promises has not shed his uniform for civilian garb. The pro-military PML-Q party -- the largest in parliament -- has no outstanding leaders but is rather a vehicle for the General's 2007 election bid. Musharraf has hand-picked his immediate circle of military chiefs; no one in the largely technocratic government has a power base. But in reinforcing his rule he has enfeebled Pakistan's already moribund political institutions. It's unclear whether in the run-up to the elections he will seek favor from the more secular parties (rehabilitating the Bhutto or Sharif dynasties) or the Islamists. Whichever direction he tilts will constrain his room for maneuver.

Many observers in Pakistan have a grudging respect for Musharraf's ability to bring stability (especially when compared with the chaos and corruption of the previous governments). But there is also anxiety that he is beginning to develop a "cult of indispensability." Increasingly, Musharraf compares himself to Pakistan's revered founder Mohammed Ali Jinnah. At the Independence Day rally in Lahore last year, he was flanked by two enormous portraits of Jinnah -- partly to underline his secular credentials, but also to portray himself as the indispensable father of modern Pakistan; so indispensable that there was a well-guarded 50-yard gap between him and his audience.

Few Pakistani analysts regard Musharraf as a visionary who can refashion Pakistan in the style of Ataturk (his hero) into a modern, secular state. The best they hope for is that his instinct for tactical advantage, his talent for steering between the Scylla and Charibdis in pursuit of "enlightened moderation" provides stability, which in turn limits the appeal of the Islamic opposition and entrenches economic improvement. The alternative, that al Qaeda gets lucky in one of its assassination attempts, is not one they wish to entertain.

Tim Lister has covered international news for 25 years as a producer and reporter for the BBC and CNN. He has lived and worked in the Middle East, and has also worked in Afghanistan and Pakistan. In 2004, he produced the award-winning documentary "Between Hope and Fear: Journeys in the New Iraq" for CNN. He is now an independent writer and producer.
Mushrraf is paying lip service to getting rid of the AQ and instead is more keen to consolidate his position in the country.

However, this is going to be a serious problem for him.