The International Monetary Fund (MF) has proposed a $200 million loan to Paraguay to combat a deepening recession sparked by neighbouring Argentina's economic woes.

Macchi's economic policies have not proved popular

A statement by the IMF said that the 18-month loan would be given to Paraguay on the condition that the country's parliament approved government measures to strengthen public finances and the country's banks.

The loan still needs to be approved by the IMF's board.

The IMF has already approved loans to Uruguay and Brazil after Argentina's economic turmoil spilled over to the countries, affecting trade in the region and leading to increased interest rates.

Paraguay briefly enforced a state of emergency last month following violent street protests over the country's deepening economic recession which left two dead and more than a dozen injured.

Stagnant economy

The Paraguay Government has proposed a string of strict measures, including increasing workers' contributions to retirement funds, scrapping Christmas bonuses for all pensioners and hiking tax rates.

These still need to be approved by the country's parliament.

Paraguay's economy has either been stagnant or shrinking for the last seven years, and many people have been taking their money out of the banks, worried they will collapse.

In July two people were killed and more than a dozen injured in Paraguay's worst riots in three years.

Hundreds took to the streets in protest against Paraguayan President Luis Gonzalez Macchi's economic policies.

During the two days of unrest, police fired rubber bullets and teargas at protesters before calm was restored.