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By Lesley Wroughton

WASHINGTON, Dec 5 (Reuters) - Liberia cleared its debt arrears with the World Bank on Wednesday, paving the way for new development lending and debt cancellation that will help the West African country rebuild after years of civil war, a bank official said.

The move, unanimously approved by the bank's board on Tuesday, was made possible with a loan from the United States and a World Bank grant, which includes an additional $9 million for future debt service and budget support for the country, officials said.

While the decision wipes out Liberia's $400 million arrears to the World Bank, it does not clear all of its debts still owing to the Washington-based development bank.

"Liberia has come a long way, following decades of civil strife, and extraordinary efforts have been made in setting the foundations of a democratic state, sustaining an economic recovery, rebuilding fiscal management capacity and increasing transparency and accountability," World Bank President Robert Zoellick said in a statement.

"The government and people of Liberia are to be congratulated for this major achievement."

Liberia's overdue debt to the World Bank and other institutions has accumulated since 1984 when conflict and government mismanagement destroyed much of the economy, forcing the World Bank and other creditors to freeze loans to the country.

However, since democratic elections in 2005, won by a former World Bank official and Africa's first female head of state, President Ellen Johnson-Sirleaf, Liberia has sought to reestablish ties with international donors and creditors.

Johnson-Sirleaf traveled the world pressing the World Bank, IMF and other creditors to cancel Liberia's $4.5 billion in foreign debt. Much of the debt is owed to the global financial institutions, but also to the Paris Club of creditor nations and commercial banks.

In October, after a meeting with U.S. President George W. Bush, Johnson-Sirleaf said her government had delivered on reforms to qualify for debt cancellation and it was time the international community made good on its debt relief promises.

Wednesday's World Bank announcement and an agreement last month by the IMF to clear its portion of Liberia's debt, possibly next year, will open the way for the country to enter the Heavily Indebted Poor Countries Initiative, a global debt relief scheme managed by the bank and fund. (Editing by Diane Craft and Braden Reddall)

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