By Patrick Markey
ALGIERS (Reuters) - Weeks after Algerian President Abdelaziz Bouteflika abruptly called off a visit by Angela Merkel, renewed health rumors are fuelling speculation over the future of an octogenarian leader in power for nearly two decades.
The rumors spiked when Algeria's envoy to Lebanon publicly denied a local report that Bouteflika had died and a private TV channel close to the presidency chimed in to say he was fine and ready to meet Spanish and Iranian delegations.
Four years after he suffered a debilitating stroke, details of Bouteflika's health are closely guarded. But any transition may come at a sensitive time for the North African OPEC member, as it faces low oil prices, regional instability and pressure for reforms to its socialist-style economy.
After Bouteflika canceled Merkel's visit last month because he had acute bronchitis, the chief of the ruling Front de Liberation Nationale (FLN) and other loyalists quickly sought to quash talk of a severe decline in the president's health.
Few observers see Algeria's leadership risking anything but a smooth handover of power in a system where decisions often emerge after behind-the-scenes power struggles among the FLN old guard and army chiefs who see themselves as guardians of stability.
But with no clear successor in sight, renewed talk of Bouteflika's illness raises questions of how well Algeria, a key gas supplier to Europe and partner in the Western war on Islamist militancy, will move ahead and who might replace him.
"The president passes along his regards, he is doing very well," Prime Minister Abdelmalek Sellal told reporters this week.
FLN chief Djmel Ould Abbes, who suggested Bouteflika could even be the party's candidate for a 5th term in 2019 despite his fragility, said the president was performing his duties normally after the Merkel cancellation.
"Let's not get into exaggeration," he told a press conference on Saturday. "He's not allowed to have some rest?"
Still, Iran has canceled a visit this month by President Hassan Rouhani, according to an Iranian news agency. Although Algeria's Ennahar TV channel had said Bouteflika would meet Spanish foreign minister Alfonso Dastis, that did not happen. Algerian officials say the meeting was never on the agenda.
Celebrating his 80th birthday this month, Bouteflika remains dominant even in absence. Many Algerians see him as a symbol of stability after he pulled the country out of an Islamist war in the 1990s into a period of growth driven by high oil prices.
Memories of that war, in which 200,000 died, have left many Algerians wary of the Arab Spring upheavals that tore through the region in 2011.
Even critics, who portray him as part of a generation of post-independence leaders who have clung to power and failed to modernize, admit Algeria has become a better place since Bouteflika won the presidency in 1999.
But since his stroke he is rarely seen, except for brief appearances on television meeting foreign dignitaries. When he was re-elected in 2014, his prime minister campaigned for him.
"People knew his condition when they voted for him. Of course, we miss him in terms of presence," Amara Beyounes, head of the pro-government MPA party, told Reuters. "But I've said before, he manages Algeria with his head not his feet."
Last year, a photograph of Bouteflika looking tired during a visit by a French delegation, and a trip for checkups in France, fueled more succession talk. But later, he appeared better, making a few public appearances.
Still, he has not spoken directly to the Algerian people since before his stroke, issuing only written statements celebrating national days and other important dates.
"Bouteflika celebrates three anniversaries at once," said an Algerian cartoon, showing Bouteflika with a thermometer in his mouth and the caption: "80 years of life, 18 years in power and 4 years of silence."
Bouteflika is foremost in the generation of aging Algerian leaders, generals and FLN party chiefs who derive legitimacy from the 1954-1962 war that ousted colonial France.
Who may replace him is sensitive, as Algeria faces its biggest challenges in years. Falling oil prices have slashed the energy earnings that finance 60 percent of the budget. That has forced spending cuts and talk of reforming the subsidies that help maintain social peace.
Since independence, Algeria's army has played a role in deciding candidates. It backed Bouteflika when he came to power.
But since 2014, he has eased the DRS military intelligence service out of politics, last year firing its chief, a backroom king-maker. Most analysts say that left loyalists more scope to opt for a soft transition.
"They have known for some time, they have had time to prepare and even if there is still some rivalry, they may believe it is better to preserve the system rather than start instability," said one Western diplomat.
The shortlist of candidates often changes. But those often mentioned are pro-government RND party leader and former presidential advisor Ahmed Ouyahia, and Prime Minister Sellal. Lakhdar Brahimi, a former U.N. negotiator, appears less often now in discussions as a possible compromise candidate.
Already some observers point to preparations for an exit for the old guard. Long-serving parliament speaker Mohamed Al-Arabi Ould Khalifa was left off the FLN lists for May's legislative election.
Years of spending billions on subsidies created an entrenched welfare state that will be hard to reform.
"Whoever is the next president will need to make reforms. We don't have room to maneuver," said a source close to the presidency. "Reforms touch everyone. Who will be the president to take those kind of decisions?"
(Reporting by Patrick Markey; editing by Giles Elgood)