Lawmakers in Uruguay have passed a tax bill which the International Monetary Fund (IMF) has demanded as a condition of fresh loans to the struggling South American country.

I am particularly impressed by the determination... to strengthen the dynamism of the Uruguayan economy

IMF's Horst Koehler

Workers held a general strike last week to protest against the bill, which will raise taxes on salaries and pensions.

Congressional approval for the bill came a day after the IMF signalled its willingness to give the Uruguay an extra $1.5bn of aid to help it cope with the financial crisis in neighbouring Argentina.

Tackling contagion

The International Monetary Fund has thrown its support behind the small South American country, following a delegation to the country last weekend.

Argentina's recession, which culminated in a currency devaluation and a debt default, has scared the international financial community away from the wider region.

Uruguay has already suffered a string of credit downgrades after Argentina's financial mess sent Uruguayan bank deposits and reserves tumbling.

High praise

The loan will not be officially approved until the middle of June, but the IMF's public praise of Uruguay's government and economic policies is seen as a sign that the money will be released.

The expected allocation of $1.5bn will top up a $743m loan approved in March.

"The resolve of the authorities and the actions already taken to deal with the current situation deserve continued international support," said IMF Managing Director Horst Koehler in a statement.

"I am particularly impressed by the determination shown by President [Jorge] Batlle and the Congress to seize this opportunity to strengthen the dynamism of the Uruguayan economy," he added.

Neighbour struggles on

While Uruguay is in the IMF's good books, Argentina is still desperately trying to pass new laws to persuade the Fund to resume lending.

Analysts say Argentina is unlikely to pull itself out of financial troubles without fresh loans.

But the IMF is adopting a tough stance with Argentina following its default and after previous promised reforms failed to materialise.