The Swedish government's decision to hike interest rates a stunning 6 percentage points, to 17.5%, in early December shows that Prime Minister Carl Bildt is committed to a painful, tight-money restructuring of the troubled economy. His immediate goal was to scotch rumors that the krona might be devalued. In the weeks after the 12.3% devaluation of the Finnish markka in November, an estimated $4.3 billion in flight capital left Sweden. Bildt also wants to show his own industrialists and the European Community that he will take tough measures to curb 8% inflation and bring Sweden's productivity in line with the EC -- rather than go the easy devaluation route. He will likely follow the rate hike with a new budget in January that, among other cuts, clamps down on Sweden's cherished health and child care benefits.
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