Page last updated at 09:34 GMT, Wednesday, 24 December 2008

IMF approves bail-out for Latvia

Latvian protesters on 18 December
There have been protests in Riga against tax rises

The International Monetary Fund (IMF) has approved a 1.68bn euro ($2.35bn; 1.59bn) rescue loan for Latvia.

It is part of a 7.5bn euro package that includes funding from the European Union, World Bank and other countries.

It will allow Latvia to maintain its currency's peg to the euro, but there will be sacrifices such as cuts in public sector wages and state spending.

Value added tax will be raised from 18% to 21%, which has prompted protests in the capital, Riga.

Latvia has also agreed to keep its budget deficit below 5% of gross domestic product next year and reduce it to 3% by 2011.

The other countries involved in the bail-out are the Czech Republic, Poland, Estonia and the Nordic countries.

The Nordic states, and especially Sweden, are involved because their banks have loaned a lot of money in Latvia, and so would be damaged if its economy were to deteriorate any further.

Meanwhile, other countries nearby have been keen to help because of the damage that would be done to them if Latvia's currency were to be devalued.

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