Debt relief, combined with Liberia's strategy to encourage investment, offers the country a chance to rebuild. (Photo Courtesy allAfrica.com)

In late 2003, Liberia began to emerge from two decades of brutal military government and civil war that had left the country with no functioning public services, spawned large-scale theft of timber and diamonds, and generated massive debts to foreign creditors.

Now, under the leadership of president Ellen Johnson Sirleaf, Liberia has reached a historic milestone: a comprehensive debt-reduction package that writes off more than 90 per cent of its foreign debt and opens up new opportunities to rebuild the country.

Liberia joins 22 other sub-Saharan countries that have received comprehensive debt relief over the past decade. It is also one of a handful of countries that have achieved significant results in recovering from the deep damage of prolonged conflict by rebuilding government and establishing the rule of law.

I began that quest for comprehensive debt relief in early 2006 while serving as Liberia's finance minister, representing Johnson Sirleaf's new government. As Director of the International Monetary Fund's African Department, I witnessed the historic "completion point" of the process in Washington, alongside my colleagues from the World Bank.

Liberia's progress has significance well beyond its immediate borders and those of its neighbours in West Africa. Its story shows that, given strong national leadership, an internationally co-ordinated combination of military, humanitarian, technical, and financial assistance can help to turn around failed states.

Liberia's post-conflict recovery is not unprecedented, but it provides a clear illustration of how co-ordinated and sustained multilateral support can help national leaders deliver impressive results. The approval of comprehensive and irrevocable debt relief for Liberia is historic for many reasons.

First, the scale of the debt burden built up over close to 20 years of conflict was monumental, amounting to more than $4 billion - three to four times the level of indebtedness relative to income of the most severely indebted European countries currently facing difficulties.

Second, exceptional efforts were needed, involving more than 100 countries, to mobilise the funds to cover repayment to the IMF of over $800 million of this debt.

Third, the terms offered by commercial creditors, governments, and other international agencies were unusually generous, involving a reduction of between 90 per cent and 100 per cent of debts outstanding.

Fourth, and most importantly, Liberia is now at a pivotal moment in its economic reconstruction, moving away from dependency on the goodwill of creditors to a new path of growth and development.

Why debt relief now? Liberia obtained its debt write-off by initiating profound changes in its governance in order to provide the institutional capability to manage debt prudently and spend resources wisely in the future.

The country has put in place strong policies and systems to manage debt; implemented new laws on financial management, procurement, and audit; stepped up spending on health centres nationwide; and sought to provide qualified and properly paid teachers in all public schools.

It also has begun to tackle corruption through the creation of an anti-corruption commission, accurate and validated reporting of all revenues received in the mining and timber sectors, and elimination of provisions for back-room tax deals.

Although debt relief and the related policy reforms are a major political and economic achievement, they are not a panacea for Liberia's considerable challenges. Maintaining peace and security is a prerequisite for economic development, and here the continued engagement of the United Nations peacekeeping force will be critical through the next few years. Creating more jobs, especially for the young and restless urban population, will cut down on crime.

Liberia's strategy to attract large-scale foreign investment in mining, agriculture and forestry will help rebuild infrastructure and boost employment and tax receipts. Already, world-class emerging-market companies are investing in Liberia. Discussions are ongoing with major firms from Brazil and Russia. While poverty remains deep and widespread, Liberians' aspirations for substantial economic improvement are now more clearly within reach than ever before.

Antoinette Sayeh is Director of the IMF's African Department. From 2006-8, she served as Minister of Finance of Liberia.