June 17 (Bloomberg) -- The International Monetary Fund and European Union pledged to make a decision on disbursing Latvia’s bailout “without delay” after the Baltic nation’s lawmakers approved budget cuts late yesterday.

The parliament voted through cuts of $1 billion, equal to 10 percent of spending, to help unlock a 1.7 billion-euro ($2.4 billion) tranche from a group led by the European Commission and IMF. A final decision could be made around June 25 or June 26, Prime Minister Valdis Dombrovskis told Latvijas Radio today, citing “unofficial information.” He will travel to Brussels tomorrow to participate in a meeting of the European Council.

Latvia, the European Union’s fastest-growing economy in 2006, is suffering the bloc’s severest recession and relying on a 7.5 billion-euro international bailout to avoid bankruptcy. The loan’s terms assume Latvia will keep its euro peg and curtail the budget deficit, which may lengthen the slump.

The cuts “will be assessed thoroughly in the next few days,” the EU said in a statement last night. The EU, with the IMF and the Latvian authorities will assess the measures, after which a decision on the disbursement of the loan “will be taken without delay,” the EU said. “It is crucial that Latvia develops a credible medium-term budgetary strategy” that will bring the deficit below 3 percent by 2012, the EU also said.

The budget “contains some important and courageous measures,” John Lipsky, the IMF’s first deputy managing director, said in an e-mailed note. Latvia’s policy program will need “to ensure a path to medium-term fiscal sustainability” he said in the statement.

‘Huge’ Cuts

Lawmakers passed measures including 10 percent pension reductions and 20 percent state pay cuts, with the proposal also entailing the closure of some state agencies and advisory councils for state-owned companies.

“Tomorrow and the next day the European Council meeting will take place, where the main work will be to convince” the member states and the Commission to transfer the loan, Dombrovskis said in a separate interview on Latvijas Neatkariga Televizija program 900 Seconds. “All the questions haven’t been completely resolved,” he said, citing budget amendments as a “good foundation” for talks on the loan.

“There exits the possibility that we could receive payment in parts,” he said.

The government, which took office in March after street protests led to the ouster of the previous administration, also will reduce spending by 500 million lati ($990 million) next year and in 2011 to bring the deficit within 3 percent of gross domestic product, enabling euro adoption.

To contact the reporter on this story: Aaron Eglitis in Riga, Lia, at aeglitis@bloomberg.net

Last Updated: June 17, 2009 02:06 EDT