Being a visitor here at the United Nations during these momentous days for the global economy is definitely an experience. Though we, political leaders from all over the world, are supposed to deal with global politics, it should not be a surprise to anyone that the intense process between Washington and Wall Street affects the atmosphere in the giant UN building as well.

As prime minister of Sweden in the early 1990s, when the country went through a similar crisis, I can easily imagine the strong pressure everyone feels who has been involved in developing the rescue plan. A financial meltdown of such a scale as we see today is dangerous not only for the United States, but an emergency for the global economy as a whole.

However, my experience in dealing with an even worse situation - though in regard to a far smaller economy - is that there are perfectly sound and adequate tools at hand if you want to stabilize the situation and regain confidence in the markets.

Between 1990 and 1993, Sweden's GDP dropped by 6 percent, aggregate unemployment went up from 3 percent to 12 percent and the public deficit exploded to 12 percent of GDP. The downturn led to massive bankruptcies and falling asset prices. Loan losses in the banking sector skyrocketed and banks had to make provisions for losses equivalent to 12 percent of GDP.

In the fall of 1992, the situation had almost spun out of control. Five out of seven of Sweden's largest banks, covering 90 percent of the market, were de facto insolvent, and we had to face the fact that all earlier measures had been insufficient. Non-performing loans exceeded by far the banking sector's total equity capital. It was obvious that even more decisive actions were necessary.

To establish a firm base for further measures, the government, backed by the opposition, issued a bank guarantee that provided protection from losses for all creditors except shareholders. There was no specified sum mentioned in the Parliament's legislation, and the government got a wide mandate to act in other respects as well.

A special authority was set up to administer the bank guarantee and manage the banks facing insolvency. The Central Bank supplied liquidity but was not directly involved in managing the banks or the non-performing loans. The bad loans were assigned realistic values and put aside in a special company - Securum - whose mission was to regain as much as possible of the public money when the real estate market was stabilized.

The direct outlays were equivalent to 4 percent of GDP, and most of it could later be recovered. Adding the revenues from privatization of the banks, which were temporarily in public hands, meant that the taxpayers actually made a slight profit.

Parallel with direct measures to counter the effects of the credit crunch, strong actions were taken to stabilize the macroeconomic situation.

There were certainly many lessons to be learned from Sweden's financial tsunami. Lesson one was that bad macroeconomic management is costly. My government was prepared for a severe blow because of two decades of mismanagement of public spending and price stability. The Swedish economy was structurally in very bad shape when we were elected in the fall of 1991. We had to do the bailing out when things got untenable.

Lesson two was the importance of maintaining liquidity in the banking system. It is necessary in order to prevent a collapse of the financial system and limit the consequences for the real economy.

Lesson three was the necessity of swiftness and transparency in dealing with banking sector problems. A bailout always brings with it a risk of moral hazard. The best way to avoid this is, of course, to gear the terms of recapitalization in such a way that shareholders, who often include management, will have to pay for their mistakes.

Lesson four was that economic policy in a small economy must find a delicate balance between stimulating investments and consumption while maintaining a credible inflationary target. If the currency weakens and interest rates go up, you will not get the necessary growth and you risk stagflation.

I hesitate to make direct comparisons between the situation in Sweden almost two decades ago and that of America today. The U.S. has the world's largest economy and its economic fundamentals are still very strong; Sweden in those days was a slow-growth economy with severe structural problems.

What is clear in both cases is that a rescue plan is not possible without achieving bipartisan consensus, which is indispensable for regaining confidence in the markets.

We were able to achieve this in Sweden. Consensus lasted throughout the whole process of restructuring the banking system. We never faced demands for going back to the heavy regulated markets of the past or for permanent state involvement in managing the financial sector. On the contrary, due to an organized and well-managed restructuring, it was possible to preserve the advantages of the deregulation of the 1980s, and, when the market conditions made it possible, privatize the banks as well as the credit stocks.

It is perfectly understandable that the strong measures the U.S. authorities are planning to deal with the crisis would arouse many questions. My experience is that the chances are very good for a positive outcome if the political system is capable of acting when action is needed.