By Serajul Quadir and Mike Collett-White
DHAKA (Reuters) - When an ally in Bangladesh's ruling coalition threatened this month to pull out of upcoming elections, elite troops broke open the gates of the party leader's home, brushed aside his guards and hauled him away.
"It was horrible to see sir being dragged into a car in front of our very eyes, and yet we could do nothing," said an official of Hossain Mohammad Ershad's party. The official, who declined to be named for fear of arrest, was at the home of the one-time military ruler at the time of the raid.
The detention of Ershad, 83, was widely seen as an attempt by the ruling Awami League (AL) to prevent him from withdrawing his party from the January 5 election, which would have further undermined the legitimacy of a ballot already being boycotted by its main rival, the Bangladesh Nationalist Party (BNP).
As it is, the BNP's boycott means that more than half of the 300 parliament seats at stake will go uncontested, dimming hopes that an inclusive ballot could restore stability to this strife-plagued South Asian country.
The crisis has spilled onto the streets, where people are shot, beaten or burned to death daily in clashes between rival groups and police. More than 200 people have died in political violence this year, half of them since November 25, when the Election Commission announced a date for the vote. Many say that emergency rule under the army looks increasingly likely.
Rolling general strikes staged by the opposition and blockades of roads, rail lines and waterways are also hurting the $22 billion garment industry, which supplies some of the world's top retailers, employs four million people and accounts for 80 percent of the impoverished country's export earnings.
Political unrest was chiefly to blame for a 40 percent drop in export orders in October from a year earlier, according to Riaz Bin Mahmud, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA)
The owner of a garment company that employs around 12,000 workers said the drop continued into last month, when he saw his orders fall by around 50 percent from November 2012.
None of the factory owners Reuters interviewed for this story were willing to speak on the record about the impact of the unrest, concerned that there could be reprisals for appearing to criticize the political parties involved.
The collapse in April of a garment-factory complex in which more than 1,100 people died had already raised the alarm among Western brands. Now, the BGMEA says, some are turning to India, Vietnam and Indonesia even though their labor costs are higher.
"They (protesters) are not burning our vehicles, they are burning our economy," said a local garments buyer for a major Western firm. "My appeal to the brands is: do not allow this country to become another Somalia."
In the port city of Chittagong, even the weekly auction of tea -- one of the biggest in the world -- had to be called off this month because of the mounting political turmoil.
EXECUTION TRIGGERS MORE KILLINGS
Making matters worse, activists from the Jamaat-e-Islami party, an Islamist ally of the BNP, have gone on the rampage as a tribunal pursues its leaders for atrocities committed during the 1971 war of independence from Pakistan.
Last week Jamaat leader Abdul Quader Mollah was hanged, the first war crimes execution in Bangladesh. He was accused of collaborating with Pakistani forces, who were eventually defeated with India's help.
Protesters from Jamaat and its student wing, Islami Chhatra Shibir, attacked members of the ruling AL party in deadly reprisals after the execution, while hundreds of people staged vigils in the capital, Dhaka, to celebrate his death.
Bangladesh's International Crimes Tribunal has exposed divisions in society over what role Islam should play, and the strong public reaction to its verdicts have raised fears that young Jamaat members are being radicalized.
The 1971 war, in which an estimated three million people died in nine months, is a festering wound not only for those personally affected, but also many young Bangladeshis.
"The young generation wants to see the end to this culture of impunity. Whoever you are, you are not beyond justice," said Tapas Baul, a 33-year-old prosecutor at the tribunal.
A resolution to the crisis could rest on two women.
Prime Minister Sheikh Hasina of the AL and the BNP's Begum Khaleda Zia have dominated politics in Bangladesh for more than two decades, and mutual suspicion bordering on hatred has blocked attempts at reconciliation between them.
Hasina wants to do away with a tradition of introducing a caretaker government to oversee elections, even if it means running unopposed.
"Without elections as announced ... there will not be any legitimate government and the country will plunge into a serious constitutional crisis," said H.T. Imam, Hasina's adviser. "The BNP, by boycotting, is contributing to the crisis."
But the BNP insists an interim government be introduced and Hasina step down before agreeing to take part in the poll.
They say the AL has crushed the opposition by arresting leaders, using the tribunal to hound Jamaat after a court in August barred the Islamist party from contesting elections.
"The root of the anger is one party not being included," said Shamsher M. Chowdhury, vice chairman of the BNP. "If the government goes through with a one-party election, it would be disastrous for the country."
The crisis has raised the prospect of a return to emergency rule, last imposed in 2007 and ending two years later with elections that saw Hasina win a landslide victory, partly on a promise to pursue war criminals.
The AL's Imam played down the prospect of army intervention.
"Bangladesh is one of the largest contributors to U.N. peace-keeping forces, which is a very lucrative and very important attraction for the military," he told Reuters. "The United Nations does not approve of military takeovers."
Imam said the BNP had become hostage to Islamist groups such as Jamaat and Chhatra Shibir, but senior Jamaat leaders blamed the government for the political impasse.
"If the government gives space to political parties, I am of the opinion that 80 percent of the violence would come to an end," said Abdur Razzaq, assistant secretary-general of Jamaat and a barrister at the crimes tribunal.
Both sides have held talks in Dhaka, assisted by the United Nations, and Hasina is under international pressure to find a solution. But these are faint glimmers of hope amidst the gloom.
"The capital is cut off, the economy is at a standstill, people are in constant fear. We've come to the end of the road," Razzaq said.
(Additional reporting by Ruma Paul; Writing by Mike Collett-White; Editing by John Chalmers and Mark Bendeich)