GEN Pervez Musharraf has left the presidential office under pressure from the leaders of the two political parties that won impressively in the elections of Feb 18 but have performed poorly in office.

They have allowed the economy to slide on a very slippery slope. On Aug 13, a day before Pakistan's 61st birthday, the rupee declined by 2.5 per cent against the dollar, the sharpest fall ever since the value of the currency was allowed to be fixed by the markets.

Fiscal deficit continues to increase with no indication by the government as to how it would be controlled. The leaders who occupy positions of power had earlier indicated that they would turn to the economy once they had ushered Musharraf out of the presidency.

Strongman rule doesn't work for economic development in a country in Pakistan's situation. This has been tried in the past but produced good results only over short periods of time. This happened for several reasons of which two are worth emphasis. The period of military domination of Pakistani politics coincided with the United States' strong strategic interest in the area in which Pakistan is located. That resulted in close relations between Washington and Islamabad which, in turn, led to large flows of American aid to the country. That helped Pakistan's economic growth since it had not been able to increase domestic resource generation to pay for investment.

The second reason for high rates of growth during periods of strongman rule was the policy continuity they offered. Investors, particularly those located outside the country's borders, don't like to see surprises in the policy framework in which they are operating or are planning to operate. They make their calculations about returns on investment in the expectation that no significant change will occur in the assumptions they have built into their projections. There was remarkable continuity in economic policies during the two 11-year periods when Generals Ayub Khan and Ziaul Haq were in charge.

This was less so in the eight years of rule by Gen Pervez Musharraf. There were significant changes in policy stance in 2002-07 compared to that adopted during 1999-02 when the country was operating under an IMF programme. That said there was no change in economic leadership. One man dominated economic policymaking during the entire period and that gave comfort to the investors.

Strongmen may have been good for the economy over the short run. They, however, did it harm over the long run. The most troubling aspect of their rule has been the lack of respect for institution-building. Economists now recognise that good and working institutions are as important for development as investment of capital and human resource development.

Of the four military presidents in Pakistan's history the only one who built institutions was Ayub Khan who set up organisations in the area of economic management while strengthening those that already existed. He also allowed policymaking to be subjected to carefully articulated processes. When economists talk about institutions they don't refer only to organisations. They put an equal amount of emphasis on formal and informal relationships among people and social and economic groups. Ayub Khan's system of governance encouraged the development of these kinds of relationships.

Once again in its history, Pakistan stands at the crossroads. For the last six months, the country had been struggling to define a democratic order under which it can operate. The movement was slow and chaotic.

On the other hand, the economy is suffering one of its worst downturns ever and there is growing anxiety that it may simply spin out of control. Then there is the concern with the situation in the tribal belt bordering Afghanistan where a small band of extremists have been able to keep the government at bay. The United States is no longer pushing the country towards democracy, disillusioned with the consequences this pressure has produced in Palestine and Lebanon.

Will President Musharraf's departure help to establish democracy, strengthen the institutions of governance and bring relief to the economy? The few months the new leaders have guided the affairs of state don't provide much hope and don't suggest that the end of one-man rule will automatically bring political and economic relief to the country. What is worrying is that people are losing confidence in the belief that the leaders they elected are up to the task. What should the leaders do to put the country on the right track?

There are several things that need to be done, and done urgently. Three of these are particularly important. The first is to establish the authority of the civilian government over the military. A recent report in The New York Times filed from Colombo after the meeting of the prime ministers of Pakistan and India quotes a number of senior Indian officials talking about their frustration with a “rudderless Pakistan”. According to one, “the real power is so far away from the structures the world deals with” that it is difficult to know whether promises made will be carried out.

However, it will take time and lot of institution-building before power can reside with the civilian leaders. It will require confidence-building including demonstrating to the military commanders that the civilian leadership has the capacity to deal with the country's myriad problems. The army's disengagement will not happen suddenly. This has been well demonstrated in the case of Turkey. The civilians will have to strengthen the institutions needed to interact with the military starting first with the National Security Council.

The second area in which action is needed is to develop a power centre that is separate from the military. The most obvious place where power should reside is the legislature. The executive branch of the government headed by the prime minister should derive authority from the legislature. At this time authority is wielded by two individuals who are not present in the National Assembly. This can't be good for the development of democratic institutions.

The third area is the grant of greater autonomy to the provinces so that policymaking does not get stuck in a cul-de-sac when politicians working in Islamabad are unable to resolve their differences.

The important point of this argument is that former President Musharraf's departure will not usher in nirvana. A great deal of work remains to be done.