Islamabad: Pakistan's governing party patched its coalition government back together on Friday, barely holding onto power, but at a price that officials in Washington had feared: the collapse of reforms critical to stabilizing the nation's economy.
The bargain underscored an increasingly urgent problem for both Pakistan and its international backers, especially the United States, which has pushed the government to improve its tax collection and make hard economic choices to ensure the nation's solvency. If the government wants to survive, the week's turmoil indicated, that path may be impossible.
The Obama administration did not publicly criticize Pakistani officials for the deal on Friday, apparently deciding that a worse outcome would have been a collapse of the government when the United States was depending on it for help in fighting the war in Afghanistan.
American officials and the International Monetary Fund pushed the effort to increase tax revenues and end costly state subsidies for energy, not only to close gaping budget shortfalls, but also to expand services and the government's presence in the lives of Pakistanis.
The power of Pakistan's industrialists and landed elite in Parliament made raising income and agricultural taxes a treacherous route for the government, despite pressure from the monetary fund.
"The message international donors have received is that if the government cannot absorb the pressure on petrol prices, then how can it take up major economic reforms?" Ashfaque Hasan Khan, dean of the business school at the National University of Sciences and Technology in Islamabad, told the local news media.
The first to exploit the discontent was the Muttahida Qaumi Movement, or MQM, a party based in Karachi that broke with Prime Minister Gilani last weekend in part to protest the fuel price increases.
All week Mr Gilani struggled to save his coalition. On Thursday he announced that the government would resume its fuel subsidies. By Friday he had extended the economic concessions still further in a meeting with MQM officials, promising that his government would put off efforts to increase tax collection as well.
But the deal is sure to ruffle the International Monetary Fund and American officials. The monetary fund has promised Pakistan more than $11 billion in loans to tide the government over. The country has received $7.6 billion so far, but the fund has extended the time for its next payment and has not given Pakistan any further installments since May.
"The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector," the monetary fund said through its press office on Friday.
Although American officials on Friday refrained from criticizing the deal, Secretary of State Hillary Rodham Clinton had taken the lead in pushing Pakistan on its tax collection, a problem that has become even more urgent as the country struggles to recover from devastating summer floods. International donations have remained well below the estimates of the billions of dollars needed to repair the flood damages.
But on Thursday, Mrs. Clinton did not hide her displeasure with the reversal of the fuel price increases, saying it was "a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan."
The Pakistani government appears to have calculated that the country is too strategically important for the United States and the monetary fund and that even though Pakistan has balked on reforms, the international community would come through with support.
A senior Pakistani government official, referring to President Asif Ali Zardari, said, "Nobody realizes that the government of President Zardari is essentially performing a juggling act."
Some analysts feared that the move by the Prime Minister Gilani's government would leave it vulnerable to further challenges by elements of its coalition and opposition parties and efforts to extract still more concessions.
Repairing the coalition, however, will help dissipate some domestic political tension, which deepened this week with the assassination of Salman Taseer, who was a major ally of Mr. Zardari and the governor of Pakistan's most important province, Punjab.
The assassination, carried out by an elite police officer who was assigned as a bodyguard for the governor, raised deep concerns for the United States about both possible infiltration by extremists in the country's security forces and Pakistan's extremist drift.
Salman Masood reported from Islamabad, and J. David Goodman from New York.
The bargain underscored an increasingly urgent problem for both Pakistan and its international backers, especially the United States, which has pushed the government to improve its tax collection and make hard economic choices to ensure the nation's solvency. If the government wants to survive, the week's turmoil indicated, that path may be impossible.
The Obama administration did not publicly criticize Pakistani officials for the deal on Friday, apparently deciding that a worse outcome would have been a collapse of the government when the United States was depending on it for help in fighting the war in Afghanistan.
American officials and the International Monetary Fund pushed the effort to increase tax revenues and end costly state subsidies for energy, not only to close gaping budget shortfalls, but also to expand services and the government's presence in the lives of Pakistanis.
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The power of Pakistan's industrialists and landed elite in Parliament made raising income and agricultural taxes a treacherous route for the government, despite pressure from the monetary fund.
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"The message international donors have received is that if the government cannot absorb the pressure on petrol prices, then how can it take up major economic reforms?" Ashfaque Hasan Khan, dean of the business school at the National University of Sciences and Technology in Islamabad, told the local news media.
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The first to exploit the discontent was the Muttahida Qaumi Movement, or MQM, a party based in Karachi that broke with Prime Minister Gilani last weekend in part to protest the fuel price increases.
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All week Mr Gilani struggled to save his coalition. On Thursday he announced that the government would resume its fuel subsidies. By Friday he had extended the economic concessions still further in a meeting with MQM officials, promising that his government would put off efforts to increase tax collection as well.
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But the deal is sure to ruffle the International Monetary Fund and American officials. The monetary fund has promised Pakistan more than $11 billion in loans to tide the government over. The country has received $7.6 billion so far, but the fund has extended the time for its next payment and has not given Pakistan any further installments since May.
"The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector," the monetary fund said through its press office on Friday.
Although American officials on Friday refrained from criticizing the deal, Secretary of State Hillary Rodham Clinton had taken the lead in pushing Pakistan on its tax collection, a problem that has become even more urgent as the country struggles to recover from devastating summer floods. International donations have remained well below the estimates of the billions of dollars needed to repair the flood damages.
But on Thursday, Mrs. Clinton did not hide her displeasure with the reversal of the fuel price increases, saying it was "a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan."
The Pakistani government appears to have calculated that the country is too strategically important for the United States and the monetary fund and that even though Pakistan has balked on reforms, the international community would come through with support.
A senior Pakistani government official, referring to President Asif Ali Zardari, said, "Nobody realizes that the government of President Zardari is essentially performing a juggling act."
Some analysts feared that the move by the Prime Minister Gilani's government would leave it vulnerable to further challenges by elements of its coalition and opposition parties and efforts to extract still more concessions.
Repairing the coalition, however, will help dissipate some domestic political tension, which deepened this week with the assassination of Salman Taseer, who was a major ally of Mr. Zardari and the governor of Pakistan's most important province, Punjab.
The assassination, carried out by an elite police officer who was assigned as a bodyguard for the governor, raised deep concerns for the United States about both possible infiltration by extremists in the country's security forces and Pakistan's extremist drift.
Salman Masood reported from Islamabad, and J. David Goodman from New York.
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