"When these pledges amounting to more than $842 million, are formalized, a process will be followed for arrears clearance," the IMF said in a statement.

Dominique Strauss-Kahn, the fund's new managing director, said the agreement was a "a critical step in moving Liberia onto a path toward comprehensive debt relief."

"IMF staff are currently finalizing discussions with the Liberian authorities on a three-year, IMF-supported program, so that Liberia can build upon the initial economic recovery, maintain the strong growth needed to reduce poverty, and restore debt sustainability," Strauss-Kahn added.

An agreement to finance the debt relief was held up by haggling among member countries, including large developing countries, over how the write-off should be funded. It is understood the funding will include mostly existing IMF funds, which will be between accounts, and an additional injection of $71 million from the Group of Eight industrialized countries.

Debt cancellation for Liberia is critical to its recovery from a 14-year-long civil war, rampant corruption and foreign debts estimated at $4.5 billion.

The debt includes around $2 billion in arrears to global financial institutions such as the IMF, World Bank and African Development Bank, $1 billion to the Paris Club of creditor nations, and more than $1 billion owed to commercial banks.

Liberian President Ellen Johnson-Sirleaf, Africa's first female head of state, visited the IMF headquarters in October, saying her country had waited patiently for over a year for the IMF to agree on funding for the debt relief.

In the meantime, she added, her government had fulfilled, as promised, economic and policy requirements to qualify for a debt write-off.

Johnson-Sirleaf's government balanced the country's budget and doubled revenues within four months of taking office and signaled no-tolerance for corruption by firing corrupt government officials.

"President Johnson-Sirleaf has done a tremendous job in a difficult situation and this breakthrough will help all of us to offer her and Liberia more support," World Bank President Robert Zoellick said in a statement.

Steve Radelet, a senior fellow at the Washington-based Center for Global Development and an economic advisor to Liberia, said the IMF deal was a key step in normalizing relations between Liberia and the institutions, whose loans are vital for Liberia's reconstruction.

"The immediate significance is a very large signal from the international community of strong support that Liberia's program is on track and that donors have full intention to move towards debt relief," Radelet said.

"It's a symbol of Liberia coming back into full esteem in the international community," he added.

Radelet said debt relief was, however, not yet a done deal and required further bureacratic steps. Donor countries would now need to agree whether they would count Liberia's economic and policy record so far as part of requirements to qualify for interim debt relief, which would largely eliminate debt service payments by the country.

Radelet said as the country gradually moved forward in the process of clearing its massive debts, it would open up other sources of financing needed to rebuild Liberia.