Lebanon in urgent need of foreign aid: IMF

WASHINGTON (Reuters) - Lebanon urgently needs foreign financial help to rebuild an economy shattered in last year's conflict with Israel, the International Monetary Fund said on Tuesday ahead of a crucial donors conference.

"In light of Lebanon's very high debt burden, it is essential that the authorities' (economic) program be supported by a strong donor financial package involving grants to be used for debt reduction," IMF First Deputy Managing Director John Lipsky said in a statement.

The war crippled an economy that was already shaky after the February 2005 assassination of former prime minister Rafik al-Hariri, and the IMF warned in October that it could shrink around 5 percent in 2006.

Lebanon has announced economic reforms to kick-start growth and hopes to win relief on some of its estimated $40.5 billion debts, or 180 percent of gross domestic product, at an international donors conference in Paris on January 25.

Success at the meeting was crucial to "to put the country's debt-to-GDP ratio on a clear downward path toward sustainability," Lipsky said.

Up to 50 countries and organizations are scheduled to attend and could pledge billions of dollars. France and Saudi Arabia are both expected to help, and the United States said on Monday its contribution would be "substantial." But the event has been overshadowed by political unrest.

French President Jacques Chirac warned earlier on Tuesday that even though the government in Beirut had virtually run out of money, mass protests to topple the Lebanese cabinet could discourage international help.

Three people were killed and 133 hurt in demonstrations in Lebanon on Tuesday at the start of a general strike called by the Iranian- and Syrian-backed Hezbollah opposition to the pro-western government of Prime Minister Fouad Siniora.

Lipsky said that a Lebanese request for help implementing economic reform through an IMF tool called Emergency Post-Conflict Assistance had been strongly supported at an informal meeting of IMF executive directors.

"Based on this, we will work with the Lebanese authorities on an EPCA, with a view to presenting their request for Executive Board approval shortly," he said.

An EPCA allows speedy release of a limited amount of IMF aid to a government without the more onerous qualification requirements of other, generally larger loan deals.