| Updated at: 0228 PST, Friday, January 07, 2011|
ISLAMABAD: Pakistan's beleaguered prime minister on Thursday caved into political pressure and reversed controversial fuel price hikes, in a move designed to prevent his fragile government from collapsing.
"In respect of the national political leadership, and this house, and the whole nation, I restore the old petroleum prices," Pakistan People's Party (PPP) premier Yousuf Raza Gilani told the lower house of parliament.
"There was a consensus among the entire political leadership and parliamentary leaders that petroleum prices of December 31 should be restored."
Rolling back the six-day-old kerosene, diesel and petrol price increases of between nine and 5.6 percent was one clause in a package of 11 reforms demanded by main opposition leader Nawaz Sharif in a 72-hour ultimatum on Tuesday.
Sharif later extended the ultimatum, which threatened to expel the ruling party from government in Punjab province, to begin after three days of mourning for liberal Pakistani politician Salman Taseer, who was shot dead the same day.
Junior coalition partner the Muttahida Qaumi Movement (MQM) had also publicly listed the hikes as one reason for quitting the government last Sunday, which severed its majority and raised fears of snap elections.
Western allies are concerned about any prospect of further destabilisation in Pakistan at a time of economic meltdown and while Washington is heaping pressure on the country to do more to fight Al-Qaeda and the Taliban.
But US Secretary of State Hillary Clinton said it was a "mistake" for Islamabad to reverse the fuel price rises as the move undermined its efforts to bolster its ailing economy.
"We believe that the government of Pakistan must reform its economic laws and regulations, including those that affect fuel and its cost," Clinton told reporters.
"We have made it clear... that we think it is a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan and we will continue to express that opinion," she said.
It remained to be seen Thursday whether Gilani would bow to any of Sharif's or the MQM's other demands.
The government can ill afford to increase public spending after catastrophic flooding last summer affected 21 million people and raised fears that Islamabad cannot meet IMF targets on inflation and budget deficit levels.
The International Monetary Authority in 2008 rescued Pakistan from bankruptcy and has extended an $11.3 billion stand-by arrangement.
Sharif's Pakistan Muslim League-N welcomed the reversal, but stood by its ultimatum on the government to implement all its demands within 45 days.
"We appreciate it," party spokesman Siddiqul Farooq told media.
"This was one point on our 11-point national agenda, which includes loan recovery, investigation of major scandals, a 30-percent cut in the non-developmental budget, the formation of an independent election commission and others."
Faisal Sabzwari, a MQM cabinet minister in the southern province of Sindh, also welcomed the government's U-turn but called on Gilani to go further.
"We are not going to reverse our decision of quitting the ruling coalition as of yet," he told media.
"The government has to do a lot more. It has to tax landlords and not the poor people who are already overburdened, and eradicate corruption, which is rampant in our country."
The MQM has also been at odds with the PPP over political violence in Karachi, which a senior PPP leader blamed on MQM supporters.
To bring down the government, the opposition would need to overcome deep divisions to table and win a no-confidence vote, therefore forcing elections.
That would depend on Sharif and his PML-N party, but analysts believe he is unwilling to take on the mantle of Pakistan's myriad problems prematurely.