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Pakistan Party to Rejoin Government, Boosting U.S. Ally Zardari

Jan. 7 (Bloomberg) -- Pakistan’s Prime Minister Syed Yousuf Raza Gilani succeeded in winning back the support of his largest coalition partner after reversing a controversial increase in gasoline prices, ending a rift that may have dislodged a key U.S. regional ally.

Lawmakers of the Muttahida Qaumi Movement will return to the government benches in Parliament but their ministers won’t rejoin the federal cabinet, Raza Haroon, a leader of the MQM said at a joint news conference with Gilani in Karachi today. Gilani visited the MQM office and was showered with rose petals on his arrival.

The MQM’s support would bolster Gilani and embattled President Asif Ali Zardari, whose grip on power was further undermined by the Jan. 4 assassination of a key aide, the governor of Punjab province. MQM lawmakers joined the opposition after their ministers quit last week over a Jan. 1 rise in state-controlled gasoline prices.

Pakistan’s main opposition leader, former prime minister Nawaz Sharif, had further cranked up the pressure, saying he would campaign for the government’s fall unless the ruling alliance meets a Jan. 10 deadline to begin a crackdown on corruption and withdraw the energy price increase.

“We are running the government with the consensus of all political parties,” Gilani said. He had been stripped of his parliamentary majority by the MQM’s desertion.

Budget Deficit

The reversal of gasoline prices may hurt Pakistan’s budget deficit at a time when the country needs to broaden what is one of the world’s smallest tax bases.

After the new year’s price increase, the cost of a liter of gasoline rose to 79.67 rupees (93 cents). Pakistani consumer prices jumped 15.5 percent in November from a year earlier, the highest rate among 17 Asian economies tracked by Bloomberg.

U.S. Secretary of State Hillary Clinton on Jan. 6 urged Pakistan to stick with its economic reforms and not “reverse progress.”

Gilani, after meeting with leaders of the main political parties in the parliament on Jan. 6, said the government has removed the nearly 7-rupee increase in the price of a liter of gasoline, taking the rate back to 72.96 rupees (85 cents).

Sharif, who had initially given Gilani 72 hours to adopt his agenda, extended the period by three days after the governor of Punjab province was assassinated in the capital.

Pakistan’s military launched offensives against Taliban guerrillas in two strongholds in 2009, and the U.S. has stepped up missile strikes from drone aircraft in regions bordering Afghanistan in a bid to weaken militants.

To contact the reporters on this story: Khurrum Anis in Karachi at Kkhan14@bloomberg.net. Haris Anwar in Islamabad at Hanwar2@bloomberg.net;

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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