Latvia votes on IMF rescue loan

December saw protests in Riga against proposed tax increases

Latvia's parliament has voted to keep a vital 7.5bn-euro (£870m) International Monetary Fund rescue plan on track.

The 54-22 vote gives the government the mandate to deal with international lenders such as the IMF and the EU.

It came as PM Valdis Dombrovskis tried to win over critics within his five-party governing coalition who oppose his harsh austerity measures.

Had he lost the vote, there were fears his government could have collapsed, analysts say.

Unlike other countries, which are trying to spend their way out of recession, Latvia has embarked on a painful path of drastically cutting state spending, and slashing wages by up to 40%, says the BBC's Damien McGuinness in Riga.

The IMF has been impressed, describing the drastic steps as inspiring, our correspondent adds.

IMF package

The Baltic state is facing the EU's worst recession - last year its economy shrank by almost 20% - and has the bloc's highest unemployment rate - at 22%.

Last month the International Monetary Fund (IMF) approved a 1.68bn euro ($2.35bn; £1.59bn) rescue loan for Latvia.

It was 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 prompted protests in the capital, Riga.

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