BEIRUT- Lebanon should restructure its Eurobonds, including a $1.2 billion issue maturing in March, and secure a multi-billion dollar IMF bailout to stave off economic meltdown, its former labour minister said.

The country is deep in financial crisis and struggling with one of the world's largest debt piles relative to GDP, and markets are focused on whether a new government formed on Tuesday will meet the March payment.

"I don't see the logic of the system leaking $500 to $600 million out of Lebanon on the March payment when an actual restructuring of the Eurobonds is next to inevitable," Camille Abousleiman told Reuters in an interview. "That money would be better spent on other things, such as food and medicine."

Abousleiman, who drafted the legal framework for Lebanon's bonds from the mid-1990s onwards, spoke on Tuesday while still caretaker labour minister. He is not part of the new government.

Lebanon has never defaulted on its international debt but with its longer-dated bonds trading at less than half their face value, the market is already pricing in prospects of a default or restructuring.

The central bank mulled a proposal to ask local holders of some of this year's bonds to swap them for longer-dated ones to ease pressure on state finances. Former caretaker finance minister Ali Hassan Khalil asked it to hold off on that plan until the new government was formed. urn:newsml:reuters.com:*:nS8N27C00C

"The size of the debt is too large relative to the size of the economy," said Abousleiman, who said any restructuring of the debt could include an extension of the maturity or reduction in the interest rate, not necessarily the principal.

Lebanon's gross public debt is around $89.5 billion, 38% of it in foreign currency.

Finance Minister Ghazi Wazni on Tuesday said the new government must decide on its approach to the Eurobond due in March and also needed foreign support to help ease economic and financial strains. urn:newsml:reuters.com:*:nL8N29Q6TL

Abousleiman said it was "inevitable" the new government would look to secure IMF support as there was no other way to get the "large liquidity" Lebanon needed.

A deal of around $4 billion to $5 billion might ease the deficit, reassure bondholders and encourage other prospective international donors, while also giving momentum to economic and social reforms, he said.

"This needs to be accompanied by a serious plan to combat corruption and return ill-gotten gains," he said, referencing one of the root causes of widespread civil unrest.

(editing by John Stonestreet) ((Tom.Arnold@thomsonreuters.com; +442075428510; Reuters Messaging: tom.arnold.thomsonreuters.com@reuters.net))