The IMF applauded the government for its return to prudent fiscal policies, and its plans to make further economic reforms in a prepared statement.
The Latvian government said it does not plan to use the money, except in case of an emergency, but it was very satisfied with the IMF's decision.
"The IMF has evaluated the budget laws for the year 2000, and their decision is the Latvian government is on the right path," said Ugis Salna, the prime minister's spokesman.
The government's budget capped spending in an attempt to keep the fiscal deficit below 2 percent of the gross domestic product.
In its statement, the IMF said the Latvian government also wants to enhance the transparency, effectiveness and efficiency of public spending.
The Bank of Latvia said it was also pleased with the line of credit extended by the IMF and the government's tougher policies.
"We are satisfied with the direction of decreasing the debt and tightening the fiscal policy. We understand it can't be done in the very short-term, but the direction is clear to us," said Kristaps Otersons, the spokesman for the central bank.
The IMF's release said that further improvements to the country's business climate and to its legal and regulatory framework will create an attractive environment for foreign direct investment.
It also said such changes will help facilitate Latvia's eventual accession to the European Union.
"I think it's quite normal to borrow some money for short term spending. It's normal. It's how you manage your money," said Salna.
"This offer by the IMF - it's a very good reserve which can be used."