Riga  - The financially-troubled Baltic state of Latvia has reached agreement with the International Monetary Fund (IMF) over revised conditions for payment of its share of a 7.5-billion-euro (10.6-billion-dollar) economic bailout package, with a Letter of Intent due to be signed Monday afternoon in Riga.

Following a weekend of frantic negotiations involving IMF representatives, Prime Minister Valdis Dombrovskis, Finance Minister Einars Repse and members of the five parties in the ruling coalition, Latvian President Valdis Zatlers said Sunday it was "absolutely clear" that the country needed help from international lenders.

Zatlers said the Letter of Intent was "a balanced document" that contained "no upsetting surprises for the people of Latvia."

Full details of the agreement have yet to be released, but Prime Minister Dombrovskis said the text would be similar to a Memorandum of Understanding already signed with the European Union, which gives the EU and IMF an effective right of veto on any matters related to government expenditure and calls for much tougher financial oversight.

The IMF mission to Latvia extended its scheduled stay in the country by more than a week, as fears grew that the two sides would be unable to find common ground on where future budget cuts would be made.

On June 16 the Latvian parliament held an extraordinary session to approve budget cuts worth 500 million lats (1 billion dollars) as the government attempted to prove it could take the tough measures demanded by lenders. Similar amounts are due to be slashed in both 2010 and 2011.

The cuts have reduced pension payments and wages and led to job losses in the public sector, but Zatlers said there was no realistic alternative.

"If we are not prepared as a country, a government and a parliament to reduce spending by 500 million [lats], the alternative is very simple - cutting expenditures by approximately 1.5 billion," he said.

The European Commission has already promised that a 1.2-billion- euro payment will be made by the end of July, but the IMF has yet to confirm whether it will release a scheduled 200-million-euro payment. Its board of governors is expected to make the decision in the next few days.

A previous payment of the same amount was withheld after the IMF decided reforms were not happening to its satisfaction and the Washington-based organisation recently expressed concern that Latvia's austerity measures were hitting the most vulnerable members of society.

The Latvian economy is set to contract by at least 18 per cent this year after a decade-long boom turned into a spectacular bust. (dpa)