What remedy did the Netherlands implement to address Dutch Disease?

• A. Increase tariffs on oil exports
• B. Establish a sovereign wealth fund
• C. Privatize state-owned enterprises
• D. Devalue the currency

Answer: (B)

Dutch Disease happens when a resource boom brings in a flood of revenue, so the currency tends to strengthen and non-resource sectors like manufacturing lose competitiveness. A sovereign wealth fund is a natural remedy because it helps manage that windfall rather than letting spending surge drive up demand and the exchange rate uncontrollably. By saving a portion of the resource income and investing it in a diversified portfolio (often abroad), the government smooths spending across good and bad years, cools inflationary pressure, and reduces the risk of the currency appreciating too much. This approach stabilizes the economy and preserves wealth for the future, addressing the imbalance created by the resource boom.

Other options don’t fit as neatly: tariffs on oil exports distort trade and don’t tackle macro stability; devaluing the currency can spur inflation and hurt purchasing power without solving the saving/spending imbalance; privatizing state-owned enterprises targets efficiency but doesn’t directly mitigate the resource windfall’s macro effects.