Re: Origins of 'Dutch Disease'

[Michael Pollak <mpollak@xxxxxxxxx>]

On Mon, 25 Feb 2002, Devine, James quoted an AIMS paper by Fred McMahon
saying:

> Beginning in the late 1960s, the Dutch economy was damaged by what
> should have been good news -- the discovery of natural gas in the
> Slochteren offshore fields. Offshore revenues did not increase the
> economy's productivity, but the inflow of these revenues led to an
> appreciation of the guilder; the price of domestically produced goods
> rose relative to the price of foreign goods, a deviation from purchasing
> power parity. Dutch exports were suppressed and imports replaced
> domestically produced goods; output and employment fell, particularly in
> the trade-oriented sectors of the economy.

Two questions:

1) Can one theoretically avoid Dutch Disease by pricing your natural
resource export in dollars, as is commonly done with oil?  Wouldn't your
currency not immediately appreciate then?  And instead you'd build up
large dollar reserves?  Those latter could cause appreciation of the local
currency or local currency inflation depending on how you used them -- but
it seems you would also have several policy options to counteract that.
And aren't most of the world's primary exports priced in dollars?  In
which case, aren't the Dutch and the English kind of an exception -- rich
countries (with trusted currencies) who are primary product exporters?

2) This article says Dutch disease started in the late 60s.  But wouldn't
it have had to have waited until 1973 and the breakdown of the Bretton
Woods fixed exchange system for this mechanism of currency appreciation to
come into play?  I thought BW revaluations were far and few between;
less than four years seems an unusually short response time.

Michael