G8 leaders to tie Arab Spring aid to reforms

DEAUVILLE, France (Reuters) - Group of Eight leaders were to approve billions of dollars in aid on Friday to new Arab democracies with a program designed to foster change sweeping North Africa and the Middle East.

Leaders were to wrap up their two-day summit in northern France by launching a partnership with the region that ties aid and development cash to progress on democracy and economic reforms by states that have thrown off autocratic rulers.

Tunisia and Egypt, whose prime ministers will meet the leaders of the G8's seven Western powers plus Russia on Friday, face facing huge economic pressures following popular uprisings that toppled their long-serving authoritarian leaders.

In a report to G8 leaders the International Monetary Fund said on Thursday the external financing needs of oil-importing countries in the Middle East and North Africa would top $160 billion over the next three years.

"The region needs to prepare for a fundamental transformation of its economic model," Masood Ahmed, in charge of Middle East and Africa at the IMF, told journalists on the sidelines of the G8 meeting in Deauville.

"This will be greatly facilitated if international players including the G8 can enter into strategic partnership with these countries ... where incentives are linked to a social agenda."

The IMF says it can provide around $35 billion to help stabilize countries' economies but the bulk of financing will need to come from the international community.

The World Bank on Tuesday unveiled $6 billion in new funding for Tunisia and Egypt, whose revolts have inspired popular uprisings in Yemen, Jordan, Morocco and Syria, and left Libyan leader Muammar Gaddafi fighting to stay in power.

The funds include budget support as well as lending to shore up the private sector and encourage new investment.

A World Bank report issued the same day said the region needs about 50 million to 75 million jobs over the next decade to absorb new labor market entrants and cut unemployment.

Diplomatic sources said the summit would also back the extension of the mandate of the European Bank for Reconstruction and Development into North Africa and the Middle East. The bank, created after the Cold War to help former Communist states become market economies, lends about 9 billion euros a year to projects anywhere from Croatia in central Europe to China.

British Prime Minister David Cameron said on Thursday the G8 summit would show Arabs on the street that the world stood behind the demands for greater economic and political freedoms.

"We will help you build your democracy, we will help your economies ... we will help you in all the ways we can, because the alternative to a successful democracy is more of the poisonous extremism that has done so much damage in our world."

However, the state of the world economy means the extent of the aid on offer is likely to be modest.

The European Union executive said it had added 1.24 billion euros of fresh grant funding to an existing program that aims to help its neighbors across the Mediterranean.