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UPDATE 2-Lebanese veterans blockade central bank in protest against draft state budget

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Beirut, May 13 (Reuters) - Retired Lebanese soldiers blockaded the central bank in Beirut on Monday in protest against draft state budget proposals they fear would curb military benefits, an escalation of demonstrations and strikes against the heavily indebted state's austerity plans.

A central bank official told Reuters the central bank was operating as normal despite the protest outside its Beirut headquarters. The demonstrators blocked the main road outside the building, Hamra, choking rush hour traffic on one of Beirut's busiest streets.

With Lebanon suffering from years of low economic growth, long-stalled reforms are seen as more pressing than ever to put the state finances on a sustainable path. Lebanon is saddled with one of the world's heaviest public debt burdens at around 150 percent of GDP.

Prime Minister Saad al-Hariri said last week Lebanon was far from bankruptcy but failure to pass a realistic budget would be tantamount to a suicide operation against the economy.

Hariri has been critical of strikes and protests against the draft budget, saying last week they were based on unfounded rumours about its contents.

The protesters began to gather on Sunday evening outside the central bank as Lebanons coalition government held its latest meeting to try to agree on the budget.

"The protest will continue until there is a solution for the clauses concerning military personnel in the budget," said retired brigadier general Sameh Rammah, who was taking part in the protest, adding that they will keep escalating until their demands are met.

Retired soldiers held similar protests on Monday outside regional offices of the central bank in the cities of Tripoli and Tyre.

"The bank is operational and the market is proceeding as normal," a central bank official, who spoke on condition of anonymity, said.

A central bank employee told Reuters workers had managed to enter the bank last night and would work as normal.

Retired soldiers have been among the most vocal opponents of draft budget proposals, blocking roads with burning tyres on several occasions in recent weeks.

Last week, central bank workers went on strike in protest against any cuts that would affect their pay, leading the stock exchange to halt trading for two days.

Workers in other state bodies have also mounted strikes.

The government said on Friday it had agreed to tighten the allocation of financial incentives that are intended for soldiers on frontline duty but applied more widely in practice.

The public-sector wage bill is the governments biggest expense followed by debt servicing costs and the big subsidies paid annually to the state-owned power producer.

The draft budget aims to reduce the deficit to below 9% of GDP from 11.2% in 2018, the finance minister has said. (Reporting by Alaa Kanaan, Tom Perry and Amina Ismail, additional reporting by Laila Bassam; Editing by Tom Perry and Peter Graff)