Latvia reaches deal on IMF, EU bailout: government

"We have reached an agreement. All documents will be signed tomorrow (Tuesday)," Edgars Vaikulis, spokesman for Prime Minister Ivars Godmanis, told AFP, declining to give further details in advance.

Latvia launched talks last month with the International Monetary Fund, the European Union and countries including Sweden, a leading investor in the Baltic state, in search of a multi-billion-euro loan to shore up the ailing economy.

The government has been trying to fend off a financial crisis following a run on the country’s second-largest bank, Parex, which is being taken over by the state.

Latvian authorities said they were seeking up to five billion euros (6.4 billion dollars) to help the country deal with the crisis.

Latvia, a country of 2.3 million people which broke free from the crumbling Soviet bloc in 1991, has been seen as an economic "tiger" in recent years, notably since joining the EU in 2004.

But after years of double-digit growth, it is confronting the sharpest recession in the 27-nation EU as once-robust domestic demand slumps in the face of high inflation, tighter domestic credit rules and the global economic crisis.

According to official forecasts, the economy may contract 1.5-1.7 percent this year and 3.5-5.0 percent in 2009.

Other ex-communist countries have turned to global lenders to try to deal with their economic woes.

The IMF, the World Bank and the EU extended a 20-billion-euro credit line to EU member Hungary at the end of October to help it cope with a severe balance of payments crisis as the global credit crunch sapped investors’ confidence.