WHAT EVERYONE HAS been whispering about for months is finally out in the open: former President Lee Teng-hui has publicly thrown his support behind Taiwan's current leader, Chen Shui-bian, and effectively turned his back on the political party he led for more than a decade.

Lee, who still holds considerable clout within the Kuomintang, or Nationalist Party, came out and urged his supporters to rally behind the embattled President Chen of the rival Democratic Progressive Party (DPP) when the two men--both native Taiwanese and both opposed to reunification with China--shared the stage in Taipei on June 16.

Their unexpected appearance together triggered speculation that Lee would support Chen in key December legislative elections. Lee, en route to the United States for a sensitive June 26-28 private visit, was at pains to deny that he would lead a new political party, saying that he only wanted to encourage and nurture young, talented politicians who could contribute to Taiwan's continuing democratization and help stabilize the country's economy and politics.

Huang Chu-wen, a former interior minister close to Lee, says he expects to announce in July the formation of a new political alliance consisting of Lee and Chen supporters from various parties. For now, it's unclear how the alliance will affect the legislative elections in December, since the roster of candidates isn't known. But analysts say it could challenge the KMT's majority in parliament, where the party has successfully stymied Chen's government for months.

A collaboration between the two leaders--who are loathed by Beijing for advocating Taiwan's independence--would mark a significant realignment of Taiwan's political landscape, with potentially far-reaching and disruptive consequences.

"The Lee-Bian alliance is making politics in Taiwan simpler," says Joseph Wu, a political scientist at National Chengchi University, using Chen's nickname. Analysts say this could be the first step in establishing a two-party system, pitting pro-Taiwanization, pro-independence politicians against those who are of mainland origin and are pro-reunification.

They say the main opposition and pro-reunification parties--the KMT of Lien Chan, former senior Kuomintang leader James Soong's People's First Party, or PFP, and the New Party--will be forced by the Lee-Chen threat to rely increasingly on each other, setting the stage for highly-charged political campaigning ahead of the December polls.

Lee and Chen maintain that it is only natural for a former president to help the incumbent. But observers say the real reasons for Lee's return to the political stage are rooted in his disappointment at Lien's leadership of the KMT.

Tzou Jiing-wen, a journalist and author of a book on Lee, says the obstructionist tactics employed by KMT parliamentarians in recent months have disheartened Lee. "It is the minority voices causing problems, forcing the government to spin in circles," she says. "Either Lien Chan is not willing to--or cannot--control legislators in his party. Lee sees that as a great weakness."

But Lee's disillusionment with Lien, his hand-picked successor, extends beyond his inability to control the party. Lien, also a native Taiwanese, is perceived as abandoning Lee's attempts to promote the interests of native Taiwanese and attract them to the KMT, which has historically been controlled by mainlanders. Tzou says Lee was also dismayed by the cooperation between the KMT and his arch-enemy, James Soong--a mainlander by origin.

Shyu Huo-yan, a research fellow in politics at Academia Sinica, Taiwan's top think-tank, notes that politicians in Taiwan invariably rely on the bitter divide between native Taiwanese and those with mainland origins to mobilize voters during elections, and this year the presence of Lee, who retains formidable support among native Taiwanese, could further polarize the nation.

Supporters of Lee and Chen accuse Lien and Soong of selling out Taiwan to the mainland, while KMT legislator Lee Shang-ren maintains that his party is neither a Taiwanese nor a mainland party, but "tries to walk a middle line and accepts different points of view."

For the two political camps, the notion of Taiwan's eventual destiny is an integral part of ethnic identity -- though no mainstream candidate, not even Lee, is advocating immediate independence.

For now, Beijing is likely to keep a low profile over Taiwan's latest political developments. However, analysts say Beijing no doubt views the cooperation between Chen and Lee with great concern. Hong Kong's Ta Kung Pao, a pro-Beijing newspaper, has run editorials lambasting their alliance.

Lien and the KMT, still struggling to recover from its stunning defeat in last year's presidential elections after more than 50 years in power, stand to lose the most, as the new alliance is likely to siphon off pro-Lee members from the KMT.

Some KMT members are calling for Lee's expulsion, putting Lien in a precarious position. Up to now, analysts note, Lien has focused on wooing back mainlanders--who make up only 15% of the party's membership--from Soong's PFP.

However, as political scientist Wu notes, if Lien were to expel Lee, "it would be a self-fulfilling prophecy that he is moving away from the KMT that Lee worked so hard to build." And, as legislator Lee Shang-ren notes, the party's goal now is to retain its majority in parliament--and that means not rocking the boat unnecessarily.

SOONG TO SCORE OFF THE KUOMINTANG

Soong, however, stands to gain from the Lee-Chen alliance. He left the KMT last year and formed the PFP after Lee passed him over as the party's presidential candidate. "The PFP is already slowly eating away at the KMT," notes author and journalist Tzou. "For Soong, it's not important whether he rejoins the KMT, it's how much support from the KMT he can steal away."

Lien is not seen as a real adversary to the highly charismatic and popular Soong. National Chenchi University's Wu believes he "will be perceived as the only one powerful enough to stand up to Lee, and he is capitalizing on this event."

Soong recently declined overtures from the KMT to establish a formal alliance to fight the Lee-Chen camp. Lee, meanwhile, has moved to allay fears among some DPP members by assuring the party leadership that an alliance is aimed at shoring up parliamentary support for President Chen and would not attempt to lure away DPP supporters, says DPP Chairman Frank Hsieh.

Lee's vote of confidence for Chen couldn't have come at a better time. Chen's government, saddled with the KMT-controlled parliament, has been nearly paralyzed by political gridlock during its first year.

Most recently, the legislature spent more than two weeks trying to agree on holding a special session to pass pressing financial legislation that it failed to vote on during the regular session, in large part due to KMT opposition.

Exacerbating the political battle are Taiwan's continuing economic woes--blame for which has been laid at Chen's door, rightly or wrongly. The latest broadside comes from Wang Yung-ching, chairman of the Formosa Plastics Group, who recently blasted the government for its refusal to accept Beijing's one-China policy.

How the elections will play out is uncertain for now. Analysts aren't sure if the new Lee-Chen alliance will help the DPP--which now has 66 seats--secure a majority in the 225-seat legislature.

With no relief yet in sight from the economic downturn and things heating up in the run-up to the elections, this summer will be a hot one for Taiwan's politicians.