Pakistani party to rejoin coalition

Fri Jan 7, 2011 2:21pm GMT

By Faisal Aziz

KARACHI Jan 7 (Reuters) - Pakistan's MQM party said on Friday it will rejoin the ruling coalition, restoring its parliamentary majority, after the government put off reforms demanded by the International Monetary Fund (IMF).

The reforms, including a fuel price increase and a sales tax, are part of a programme agreed in exchange for an $11 billion IMF loan and their delay will likely infuriate the IMF and dismay nuclear-armed Pakistan's Western allies.

Investors would also be dismayed, analysts said.

The Muttahida Qaumi Movement (MQM), the second largest party in the coalition, defected to the opposition on January 2, depriving the government, a strategic U.S. ally, of its majority, sparking a political crisis and raising the prospect of an early election.

"MQM in a gesture of goodwill, for the promotion of democracy and in the face of critical condition of the country, will again sit on the treasury benches," Raza Haroon, a top party leader, told reporters as he stood with Prime Minister Yusuf Raza Gilani.

But Haroon said the MQM would not immediately rejoin the federal cabinet, indicating the party was holding out for more concessions.

The MQM, which dominates the country's financial capital Karachi, cited a new year fuel price increase as the main reason for its defection.

On Thursday, the government cancelled the fuel price rise, prompting sharp criticism from both the IMF and U.S. Secretary of State Hillary Clinton.   Continued...

<p>Pakistani Prime Minister Yusuf Raza Gilani (L) walks with President of the Pakistan Muslim League, Chaudhry Shujaat Hussain, after meeting at Hussain's residence in Lahore January 3, 2011. REUTERS/Mohsin Raza</p>
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