LEBANON - Nov 1 - Hizbullah Issues Ultimatum To Lebanese Government.

Sayyed Hassan Nasrallah, leader of Lebanon's Hizbullah movement has given the coalition government of Fouad Siniora until mid-November to agree to the formation of a national unity government or face protests demanding new elections. He said that Hizbullah and its allies in the Amal movement, who currently hold five out of 24 cabinet posts, should have at least a third of the cabinet in any new unity government - which would give them an effective veto over cabinet decisions. Since the war ended on August 14, Hizbullah and its allies have been demanding a change to the government, which is dominated by anti-Syrian groups. But the failure of Lebanon's political factions so far to reach agreement has prompted some officials to sound alarm bells about the impact of political instability on the country's postwar recovery. Emphasising the need to "kick-start" economic recovery, Jihad Azour, Lebanon's finance minister, told the Financial Times that any heated debate indicating political instability would hurt the economy. The International Monetary Fund estimates that the war between Israel and Hizbullah could cause Lebanon's economy to contract by 5 per cent in 2006. It puts war damage at several billions of dollars. Azour, a member of the anti-Syrian Future movement of Saad Hariri, the son of Rafiq Hariri, the murdered former PM, said a return to confidence was crucial for the economy, which relies on foreign interest in its banking and real estate and on tourism. He welcomed renewed political dialogue - delayed until at least next week - in principle, but warned that a national unity government without an agreed programme could lead to paralysis. "At least this government can act", he said. Hizbullah and its main Christian ally, former General Michel Aoun, have previously objected to the government's economic reforms. Lebanon is hoping to receive international support for servicing its $38bn (30bn, [pounds sterling]20bn) public debt at a donors' conference in Paris in January. The debt is expected to grow because of the war and is now forecast to reach $41bn by the end of the year. During the war, Saudi Arabia and Kuwait deposited $1.5bn in the Lebanese central bank to provide financial support and pledged $800m in reconstruction grants. At a conference in Stockholm at the end of August, other international donors pledged another $940m in aid. Lebanon has said it wants grants rather than new loans at the Paris conference. Marwan Barakat, head of economic research at Lebanon's Bank Audi, said that whatever the political constellation, Lebanon had little choice but to go ahead with the economic reform package the international community wants to see. The banking sector showed "remarkable resilience", during the war, he said, quoting a recent IMF report. Some $3bn in deposits fled the country but about half of these had returned which meant that total deposits were still up on a year ago. Barakat said many people were putting money into Lebanese banks again but conceded that many of "those who panicked during the war" were waiting to see how the political situation developed. The same can be said of the other crucial sector of Lebanon's economy: property. This month, the Abu Dhabi Investment House approved the $600m Beirut Gate development in the renovated city centre. Flanked by the city's mayor and the head of Solidere, the company that develops central Beirut, the project was touted as proof of confidence in Beirut. However, Raja Makarem, a property consultant said there was hardly any activity in the sector, as far as large investments of more than $5m were concerned. These used to make up the bulk of the activity and were driven by money from Gulf countries and expatriate Lebanese. Makarem said that ADIH was merely trying to sell off plots it had already purchased. "If they succeed in doing that, then it will be a proof of confidence".