Aug. 18 (Bloomberg) -- Pakistan's President Pervez Musharraf, the dictator who reinvented himself as a U.S. ally against terrorism, resigned to avoid facing impeachment charges for illegally seizing power and mishandling the economy.

``This is not time for individual bravado,'' Musharraf, 65, said in a one-hour address to the nation. ``I lose or win in impeachment proceedings, the Pakistani nation will be the loser.''

Musharraf's departure after a six-month standoff frees up the coalition government to tackle an economy growing at the slowest pace since 2003, leaving half the population of 168 million short of food. It will also test the durability of a fragile coalition that has been criticized by the U.S. for not doing enough to fight Taliban militants on the border with Afghanistan.

The resignation ``can give the government a chance to build political support for military action'' against the Taliban, said Mahmood Shah, a retired general in Peshawar, the city closest to the Taliban's strongholds. ``The present policy has been unpopular partly because Musharraf is very unpopular.''

`Redouble Focus'

The Bush administration pumped $10 billion into Pakistan under Musharraf after the former army chief ended support for the Taliban in the wake of the Sept. 11, 2001, terrorist attacks. U.S. Secretary of State Condoleezza Rice today praised Musharraf's cooperation in the war against al-Qaeda and urged the country's leaders to ``redouble'' their focus on fighting terrorism.

``President Musharraf has been a friend to the United States and one of the world's most committed partners in the war against extremism,'' Rice said in a statement.

The president was replaced by Mohammedmian Soomro, chairman of the Senate and a Musharraf loyalist, pending a parliamentary vote to choose a new head of state within 30 days. Pakistan's benchmark stock index rose the most in eight weeks and the rupee gained after the announcement.

Since January, Musharraf has faced criticism for slowing economic growth, a widening budget deficit and an inability to rein in inflation running at a 30-year high. That's a reversal from his first eight years in office, when he was credited with reviving the economy after the government had less than $1 billion in foreign-exchange reserves.

``The government has been so distracted by this Musharraf business,'' said Henri Barkey, a former State Department policy planner who heads the international relations department at Lehigh University in Bethlehem, Pennsylvania. ``Now the U.S., hopefully, can look forward to a government that can function. Whether it will function remains to be seen.''

Coalition Victory

The president's resignation is a victory for Asif Ali Zardari, co-chairman of the Pakistan Peoples Party, and former Prime Minister Nawaz Sharif, who had pledged on Aug. 7 to remove Musharraf. The alliance has been paralyzed since it took power in March, unable to agree on how to oust the president and reinstate judges sacked by him last year.

``The biggest hurdle in the way of democracy is gone,'' said Bilawal Bhutto Zardari, who assumed the leadership of the Peoples Party with his father, Asif Ali, after his mother, Benazir, was killed in December. ``Now the coalition government can move on and solve the problems of the people.''

Musharraf was the army commander in 1999 when he overthrew Sharif, who has led calls to remove the president since returning from exile late last year. Pakistanis had been frustrated with a decade of corrupt and ineffective governments under Sharif and Benazir Bhutto, and opinion polls showed 70 percent of Pakistanis supported the coup.

Into Exile

A former special-services commando, Musharraf put Sharif on trial for alleged corruption and, in a deal brokered by the Saudi royal family, the two-time former prime minister was sent into exile in Saudi Arabia. Musharraf's government also pursued corruption charges against Bhutto, leading her to remain in Dubai and London until she returned last year, only to be assassinated 10 weeks later. Musharraf didn't say today whether he plans to remain in Pakistan or go into exile.

The former general has been under pressure to quit since he fired 60 judges, including Supreme Court Chief Justice Iftikhar Muhammed Chaudhry last year, leading to nationwide street protests. The current government, led by the Pakistan Peoples Party, which came to power in March after defeating pro-Musharraf parties in the Feb. 18 elections, vowed to reinstate the senior judiciary but has been unable to agree on how to do so.

Musharraf assumed the presidency in 2001 and was re-elected by parliament in October. Opposition parties claimed the law barred Musharraf from standing while he still headed the military. Musharraf handed over control of the army to Ashfaq Parvez Kayani in November.

Peace Process

As president, Musharraf started the India-Pakistan peace process by initiating a cease-fire across the border in October 2003 and pushing several so-called confidence-building measures including bus services and cultural exchanges.

Musharraf considers himself a religious moderate who enjoys playing bridge and listening to classical music. He preached ``enlightened moderation'' as a way forward for Pakistan, the world's second-most-populous Muslim nation after Indonesia.

During his tenure, Musharraf survived at least four assassination attempts by Islamic extremists since he ended support for the Taliban regime.

Early Years

The former army chief was born on Aug. 11, 1943, in Delhi, emigrating to Pakistan after the partition of the subcontinent in 1947 at the age of 5. He lived in Turkey from 1949 to 1956, where his father was a diplomat. He attended St. Patrick's school in Karachi and then joined the army, graduating from the Pakistan Military Academy.

Musharraf was commissioned in the artillery regiment of the army in 1964 and later joined the Special Services Group as a commando, according to his profile released by the army. After serving in two wars with India -- in 1965 and 1971 -- he became a general in 1991 and chief of the army in October 1998.

As many as 2,000 people were killed in suicide attacks and other bombings in Pakistan last year.

``President Bush is committed to a strong Pakistan that continues its efforts to strengthen democracy and fight terror,'' White House National Security Council spokesman Gordon Johndroe said. ``President Bush looks forward to working with the government of Pakistan on the economic, political and security challenges they face.''

To contact the reporter on this story: Naween A. Mangi in Karachi, Pakistan, at nmangi1@bloomberg.net; Khalid Qayum in Islamabad at kqayum@bloomberg.net.

Last Updated: August 18, 2008 14:00 EDT