* President acted to end infighting, but fissures remain
* Transition from liberation to governing is proving tough
* Juba appears calm, but eyes on power-broker army
By Andrew Green
JUBA, July 25 (Reuters) - South Sudan's President Salva Kiirhas asserted his power by firing his biggest political rivalsalong with his entire cabinet, but he risks splitting theAfrican oil producer at a time of new tensions with civil warfoe Sudan.
On Tuesday, Kiir removed Vice President Riek Machar and topnegotiator Pagan Amum, senior officials in the ruling SudanPeople's Liberation Movement (SPLM) who had indicated they wouldchallenge him as party frontrunner for elections in 2015.
Analysts said Kiir acted to end increasing infighting insidethe party, which led the country to independence in 2011 after apeace deal that had ended one of Africa's longest civil warsfought with Khartoum.
Rivalry inside the SPLM has hampered its government at atime of a new confrontation with Sudan over oil flows andfrustration among ordinary people who have been waiting for adevelopment "peace dividend" after the 2005 end of the war.
Despite earning more than $10 billion from oil sales sincethen, the government has built no new hospitals or powerstations, while rural areas lack the most basic services.
But Kiir's dismissal of the two rivals and his entirecabinet threatens a shaky consensus among rival tribes andmilitia leaders dominating the country the size of France.
"If the current power struggle within the SPLM continuesunabated, it is certainly bound to have far-reachingconsequences," the Sudd Institute, a local think tank, said.
"This could include a possible party split, state failure,or a remote chance of emergence of a genuine multi-partydemocracy," it added in a report.
With institutions still weak, the fissures in the partycould follow ethnic lines and lead to a new civil war in aworst-case scenario, the Institute warned.
Stability in South Sudan is not only vital for crude buyersin China, India and Malaysia but also for east Africanneighbours such as Ethiopia, Kenya and Uganda which were swampedwith refugees during the decades of civil war.
SOLDIERS CHOSEN OVER TECHNOCRATS
Kiir had presided over a cabinet of 29 ministers and one ofthe world's biggest parliaments, made up of fellow bushcommanders and tribal leaders.
Some of these had been fighting each other during the civilwar when Sudan paid rivals to divide its southern enemy.
He managed to keep powerful ministers with their ownmilitias on his side by looking the other way over corruption,despite a public promise to recover $4 billion in fundsallegedly "stolen" from the Treasury by government officials.
Kiir, a no-nonsense army man most comfortable in the field,chose militia commanders for their loyalty over technocrats,although the latter would have been more suitable in helping tobuild up state institutions.
But after a 16-month oil shutdown and the prospect of Sudanagain blocking crude sales from the landlocked southern nation,government money is running short - and so is aid donors'patience.
In the past few months, authorities managed to pay civilservants only thanks to loans from the United States and theEuropean Union, with unofficial conditions attached relating toimproved governance, diplomats say.
In a first step, Kiir decided to cut the number ofministries to 19 in his future lineup which he has yet to name.
"The transition from liberation to governing has provenquite challenging," said Biong Deng Kuol, a fellow at Harvard'sKennedy School of Government. He recommended that the presidentbring in new, competent technocrats to form a new cabinet.
However, spending less on patronage such as official LandCruisers - every senior official is entitled to two of thevehicles - might fuel dissent inside his party, exacerbating atrend in the past few months when some state governors turnedagainst Kiir.
EYES ON THE ARMY
Neither Machar nor Amum, who belong to different tribes fromKiir's dominant Dinka, have said what they plan to do next.
In a new sign of tensions, Kiir ordered Amum not to leavethe capital, Juba, or make any comments while being investigatedfor "his deliberate endeavour to create unnecessary divisions"in the SPLM, state radio said on Thursday.
Much will depend on the reaction of the army, which consumesat least 60 percent of the state budget and is the power brokerin the SPLM.
Analysts say Sudan has been fuelling dissent by supportingrebels led by David Yau Yau, who is fighting the army in SouthSudan's Jonglei state. This has hindered plans to search for oilthere and enraged SPLM hardliners who want to arm Sudaneserebels battling the Khartoum government.
Others, like Kiir, would prefer negotiation to end conflictwith Khartoum over disputed territory. "Salva is by nature aconciliator and wants the South to get on with becoming anation," said Eric Reeves, a U.S.-based Sudan activist.
Before the announcement on Amum, life had been getting backto normal in Juba. Soldiers beefed up security at Kiir'spresidential office and major ministries but U.N. staff havegone back to work after being initially advised to stay at home.
Top security officials went on state radio to calm people. "If you are one of these who enjoy themselves with a glass ofwine or beer or anything that makes you happy or having funsomewhere after working hours at bars or anywhere you usuallygo, please continue to do so," one radio announcement said.
But locals remain wary. "People are getting scared," saidPaul Mandela, a motorcycle taxi driver. (Writing by Ulf Laessing; Editing by Pascal Fletcher and DavidStamp)
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