UPDATE 1-Lebanon's Aoun hopes government will be formed quickly

Lebanese President Michel Aoun said on Thursday he hoped a new government would be formed quickly to carry out essential reforms in a country grappling with the worst economic crisis since its 1975-90 civil war.

More than one month since Saad al-Hariri resigned as prime minister in the face of mass protests against Lebanon's ruling elite, Sunni businessman Samir Khatib appears on course to be designated as the new premier informal consultations on Monday. Lebanon's long-brewing economic crisis has grown more acute since protests began on Oct. 17, spiralling into a financial crunch that led banks to impose informal capital controls as dollars became scarce and the local currency weakened.

The designation of a new prime minister, who must be a Sunni Muslim according to Lebanon's sectarian power-sharing system, will be followed by talks to form the new government that is expected to include technocrats and politicians. A senior political source said once Khatib is designated, the cabinet was expected to be formed quickly because major parties had already reached an agreement on its make-up.

Aoun, speaking during a meeting with heads of professional syndicates, said the new government's priorities would include "achieving the essential reforms in different sectors" and fighting corruption, a statement from the presidency said. There were some signs of opposition. Christian politician Samir Geagea - whose Lebanese Forces party holds 15 of parliament's 128 seats - said the proposed new cabinet would be made of establishment technocrats, out of touch with protesters calling for broader change.

But the prospects of a prime minister being designated helped the Lebanese pound to strengthen. Dollars were being offered on a parallel market at 1,980 pounds compared to 2,030 pounds on Wednesday, a dealer said. The official rate is 1,507.5 pounds. Lebanon's economic crisis is rooted in decades of state waste and corruption that have made it one of the world's most heavily indebted states.

A U.S. official, addressing a subcommittee of the U.S. Senate Foreign Relations Committee on Wednesday, noted that more than $11 billion in financing had been pledged to Lebanon last year in Paris if it acts seriously on reform. "But there is no Western country that is going to jump in there and say 'we are going to bail you out this time once again even though you haven't gotten the message from your people and even though you haven't committed to reform'," said Joey Hood, principal deputy assistant secretary at the Bureau of Near Eastern Affairs.

Efforts to agree a new government has been mired in political differences between Hariri, who is aligned with Western and Gulf Arab states, and the Iran-backed Hezbollah and its allies, including Aoun. Hezbollah, which had more influence in the Hariri-led cabinet than in any previous administration, has accused the United States of meddling in the formation of a new Lebanese government. It had backed Hariri's return.

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