Latvia is 'saved from bankruptcy'

Latvia's prime minister must make cuts to receive loans from the EU

Latvia's prime minister says that he has saved the country from bankruptcy.

Valdis Dombrovskis told public radio that the decision late on Thursday to cut 500m lats ($1bn; £607m) from the budget was "very difficult".

But the cuts were needed for the country to receive the next instalment of its European Union bail-out loans.

The country agreed a 7.5bn euro ($10.5bn; £6.4bn) loan package in December, but must cut the budget deficit to receive the loans.

"The signals we have been getting from the European Commission are positive," he said.

The five-party coalition government agreed to a series of measures with unions and employers.

The cuts will include reducing old age pensions by 10% and cutting public sector salaries by 20%, but they decided against increasing income taxes.

Parliament will vote on the changes next week.

Latvia's currency is pegged to the euro, but the recession has hit Latvia so badly that many analysts believe it will have to devalue the lat.

Latvia's central bank has been intervening to support the currency this week.