A STABLE country which can pay its debts, yes, but Sweden, the cheap-labour tax-haven in the European Community's backyard, is a far more difficult concept to grasp. However, Mr Bo Lundgren, Sweden's Minister for Fiscal and Financial Affairs and one of the prime movers in a broad-reaching economic reform movement which promises fundamental change to the so-called Swedish model, is attempting to spread a low-tax, improved-productivity message about his fiscally troubled homeland. In Hongkong with senior officials from the Swedish National Debt Office on a tour through Asian financial capitals to sell its sovereign debt, Mr Lundgren is one of the people responsible for deciding to reduce public spending by about six per cent of gross domestic product and for cutting top marginal income tax rates to 51 per cent, compared with 75 per cent a few years ago. ''Sweden until the beginning of the 1970s performed very well, but we became used to things going smoothly and started a transfer payments policy that was costly and ultimately hurt productivity,'' said Mr Lundgren, a member of the Moderate Party. ''Wages and prices rose faster than in the rest of the world and the competitiveness of Swedish industry decreased. Incentives to save were undermined. ''We got to the point where the tax burden was so high that it actually brought in little revenue but caused a great deal of harm.'' Tired of paying the costs for a cradle-to-grave welfare system it could no longer afford, the Swedish electorate turned the Social Democrats out of office and sought change from a centre-right government. In October 1991 Mr Lundgren and his colleagues set out to alter Sweden's macro-economic setting by slashing public sector spending and lightening the burden on the private and commercial sectors through dozens of tax changes. However, the reform mission has been hampered by near-collapses in the domestic banking sector and a massive devaluation of the krona after intense currency speculation forced Sweden's central bankers to abandon a fixed exchange rate. Both misadventures have been costly. ''We defended the krona two times but couldn't survive the third,'' said Mr Lundgren of Sweden's attempt to keep its currency value linked to those of the EC, which Sweden hopes to join by 1995. ''We estimated it would fall 10 to 12 per cent, but it fell by about 25 per cent, which we now think is overdue.'' At the same time the government inherited a bank crisis that could be traced to property and share speculation, driven in turn by the search for high tax deductions. ''When the speculation bubble finally burst, the consequences were devastating,'' said Mr Lundgren. ''In 1990-92, the credit losses amounted to 100 billion kronor [about HK$100 billion] and further losses are expected in 1993 and 1994.'' As a result, the national government has been forced to provide guarantees for the banking sector, a large part of which could have collapsed without intervention. The government now finds itself nursing the financial system back to health or running restructurings or wind-ups of institutions mortally damaged when the Nordic version of Japan's ''bubble economy'' burst. It even has a few banks on its hands it would not mind selling to foreigners: that would be possible, since Sweden lifted most restrictions on foreign investment late last year. ''This has been a major problem and it is expensive, but we have had to do it,'' said Mr Lundgren, who reckoned the 1992-93 financial year would pose the ''most acute difficulties''. Mr Lundgren is counting on additional strains being offset by productivity gains and increased export competitiveness because of heavy devaluation against the currencies of most of its trading partners. But the government must hope the economy turns around quickly. Unemployment is about seven per cent and the country goes to the polls next year.