UPDATE 2-Lebanon's president calls for new government of technocrats to push economic reforms

Lebanese President Michel Aoun called on Thursday for the formation of a new government of technocrats following the resignation of prime minister Saad al-Hariri amid nationwide protests against a sectarian elite blamed for mishandling the economy.

Hariri resigned on Tuesday, propelled by an unprecedented wave of protests lasting two weeks. Aoun's comments could pave the way for a compromise over a new government needed to enact urgent reforms seen as vital to steering Lebanon out of a deep economic crisis. "Ministers should be chosen according to their competencies and expertise, not political loyalties," Aoun said in a televised address to mark the completion of three years in office.

"Lebanon is at a critical juncture, especially in terms of its economy," he said. A senior official familiar with Hariri's thinking said he was ready to return as premier of a new Lebanese government on condition it includes technocrats and can quickly implement measures to stave off economic collapse.

In his speech Aoun called for an end to the sectarian state and for the establishment of civil governance, a key demand of protesters who have also demanded that technocrats replace leaders they accuse of rampant corruption. Lebanon's powerful Iran-backed Hezbollah movement said on Thursday Hariri's resignation would waste valuable time for pushing through the reform measures, which aim to tighten state finances and prod western donors to release billions in pledged aid.

"Hariri's resignation will contribute to wasting the time available to enact the reforms," Hezbollah said in a televised statement. It also accused the United States of meddling in domestic affairs to spread chaos. France, which backs Hariri, also called for the quick formation of a new government to enact the urgent reforms.

Parliamentarians from the Hezbollah movement called on Lebanon's central bank to take steps to "guarantee avoiding the monetary situation spiralling out of control". Banks, shut for nearly two weeks, are due to reopen on Friday.

Lebanon's banking association said banks would meet "urgent and basic" needs such as salary payments but asked that customers consider the "interests" of the country amid fears that many will rush to withdraw deposits or transfer assets overseas. "The association hopes that all bank customers understand the current situation and respond positively to serve their interests and the interests of the country during this exceptional period," the Association of Lebanese Banks said in a statement.

SEMBLANCE OF NORMALITY

Before he resigned, Hariri's feuding government - which includes Hezbollah - had announced a list of reform plans last week, but these failed to defuse popular anger. The proposals also failed to convince foreign donors to release $11 billion in badly needed aid that they pledged at a Paris conference last year.

After protests had largely subsided on Wednesday, protesters took to the streets again overnight and on Thursday, with many demonstrators demanding more resignations. In a separate statement, the heavily armed Hezbollah said it targeted a drone over south Lebanon with "appropriate weapons" on Thursday, forcing it to leave the country's airspace.

Israel's military said an anti-aircraft missile was fired from Lebanon at one of its drones but the aircraft was not hit. Hezbollah had vowed in August to shoot down Israeli drones that violate Lebanon's airspace on almost daily basis. That came after a suspected Israeli drone attack in a Beirut suburb.

Lebanon's dollar bonds rose for the first time in 10 working days with 2021 maturity debt rising 0.8 cents to 68.5 cents in the dollar, its biggest jump in six weeks. The bonds have been under huge selling pressure in recent days amid simmering concerns about the government's ability to meet its debt obligations. At nearly 150 percent of GDP, Lebanon has one of the world's highest public debt burdens.

President Aoun has formally asked the Cabinet to continue in a caretaker role until a new one is formed, as required by Lebanon's system of government. Seeking to restore a semblance of normality, troops and riot police deployed on Thursday morning, reopening roads including a major highway north of Beirut and a bridge in the capital.

"We've been on the streets for 14 days. The politicians have been taking this as if nothing's happening," said Simon Nehme, a protester at the Ring Bridge in Beirut. "They're stalling to get us bored and tell us to leave the streets. This won't happen." Lebanon's army command has said people have the right to protest but only in public squares. Soldiers fired tear gas after clashing with protesters blocking a road on Wednesday night in the Akkar region.

The education minister has called on schools and universities to reopen their doors but in Beirut and parts of northern and southern Lebanon, most schools remained shut, according to Reuters witnesses.

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