* Opposition says plot charge used to justify arrests
* Government says legal process must be followed
ADDIS ABABA, May 5 (Reuters) - An Ethiopian opposition leader said on Tuesday an anti-government plot had been invented as an excuse to arrest potential candidates ahead of national elections next year.
"Without third party verification I can't believe there was a plot," Bulcha Demeksa, leader of one of the largest opposition parties, the Oromo Federalist Democratic Movement, told Reuters.
"This government is just looking for an excuse to imprison potential politicians."
Prime Minister Meles Zenawi's government said last month a group led by an Ethiopian-American professor had planned to use assassinations and bombings to provoke street protests and topple the government.
Addis Ababa arrested 40 former and current army personnel and members of a disbanded opposition group from a "terror network" it said was formed by Berhanu Nega, an opposition leader now teaching economics in the United States.
The Bucknell University lecturer, who has publicly said he wants to overthrow the Ethiopian government, has called the accusations "baseless".
"When Berhanu says he wants to overthrow the government, it is just words," said Bulcha.
"He couldn't have organised these people from the U.S."
Former Ethiopian president Negaso Gidada, now an independent member of parliament, also told Reuters he doubted Berhanu's involvement, but said the government was using the alleged plot to root out dissenters in its military.
"There is no democracy in Ethiopia," added Negaso, citing recent legislation governing the activities of charities and the media that rights groups have condemned as repressive.
The Ethiopian government's head of information, Bereket Simon, told Reuters that evidence was being prepared and the accused would appear in court on May 11.
"Nobody has any right to prejudge the evidence and undermine the rule of law," he said.
Opposition parties routinely accuse the government of harassment and say their candidates were intimidated during local elections in April of last year.
The government denies that.
Another opposition leader, Birtukan Mideksa, a former judge who heads the Unity for Democracy and Justice party, has been in solitary confinement since December.
She was jailed after a disputed 2005 poll, with Berhanu and other opposition leaders, when the government accused them of instigating riots in Addis Ababa in an attempt to take power.
About 200 opposition protesters were killed by soldiers and police in violence that followed.
Mideksa and Berhanu were released in a 2007 pardon, but she was re-arrested last year after the government said she had violated the terms of the pardon.
Meles was hailed as part of a new generation of African leaders in the 1990s, but rights groups have increasingly criticised the rebel-turned-leader for cracking down on opposition in sub-Saharan Africa's second most populous nation.
The party that wins next June's parliamentary election will pick the prime minister. Meles is expected to win comfortably.
Ethiopia's political climate is closely watched by foreign investors showing increasing interest in agriculture, horticulture and real estate prospects.
The nation's economic progress has been hampered of late by high inflation and a fall in foreign exchange inflows.
The country is one of the world's poorest, ranked 170 out of 177 on the United Nations Human Development Index, and one of the largest recipients of international aid.
"Humanitarian aid should be continued, but development assistance should be conditional on a country being democratic," said Bulcha. "How can you imprison and kill your people and have the world treat you like a democracy?" (Editing by Andrew Cawthorne)
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