BEIRUT, Lebanon - Lebanon's next government has a rare chance for a major economic reform drive if it can overcome political and sectarian divisions and agree on a plan, the World Bank manager for Lebanon said on Tuesday.

Omar Razzaz said Lebanon, just emerging from a divisive election, must find consensus on a plan focusing on cutting one of the world's highest debts, fiscal reform, boosting growth, reducing poverty and protecting the environment.

Elections that ended on June 19 returned an anti-Syrian majority to parliament for the first time since the 1975-1990 civil war, but also brought sectarian tensions to the surface.

It was the first election for three decades without Syrian troops in Lebanon, who withdrew under international and local pressure following the assassination of former Prime Minister Rafik al-Hariri.

"This is a window of opportunity for a major thrust on reform," Razzaz said. Parliament's constellation of sectarian and political alliances was healthy.

"The question is can you, out of that mosaic, build an alliance that has its eye on the long-term reform agenda for Lebanon, or is each group going to stick to its own little agenda and veto anything being pushed by the others?"

Tiny Lebanon is saddled with a debt of about $36 billion, accumulated since the civil war. Political infighting paralysed economic reforms Lebanon promised to international donors at a Paris meeting in 2002 to ease debt servicing.

Aid linked to reform

Donations were supposed to give Lebanon breathing space on debt servicing, which consumes the bulk of government revenues, and trigger change. But Razzaz said reforms promised were vague.

Global help was needed to cut debt servicing but must be linked to reforms to cut debt and boost growth, he said. Lebanon must take the initiative on reform in the next few months.

"The international community is certainly interested in helping, there is no doubt that there is the will," he said.

Razzaz said the government would find it hard to ask for more while $1.5 billion of pledged global funds were pending.

"There are a number of things Lebanon can do to show that it's taking control of its reform agenda, and one of the early ones is to start using the funds that are already committed."

An inefficient, opaque 1959 law on procuring work and goods contracts had hindered spending the funds and turned off donors including the World Bank, he said.

Pension reform could also be moved on quickly. A draft law for the private sector was ready but not submitted to parliament because of Hariri's killing.

And pensions for the Lebanese military and civil servants in Lebanon are among the most generous in the world, according to the World Bank.

Lebanon must reform its bloated civil service, which has an average age of 57, and staff it with skilled, well-paid, accountable workers to carry out reforms, Razzaz said.

And urgent reform was needed of the power provider, long slated for privatisation, which Razzaz said drained the budget of $600 million in state subsidies annually instead of generating income.

Razzaz said removing barriers to investment and cutting production costs to boost growth were also essential to create job opportunities and staunch Lebanon's high emigration.

Lebanon's central bank slashed its growth forecast for 2005 to just two percent earlier this month from predictions of six percent before Hariri's killing.

With Syria out, the World Bank and analysts say no one but Lebanon can be blamed for holding up reform.

"So the burden is on the next government and the parliament to push on with reforms. And I think they will," Razzaz said. (Reuters)