One bank just unravelled Venezuela’s toilet paper crisis
Venezuela has been beset by chronic shortages of toilet paper for years, and now Bank of America Merrill Lynch believes it knows why.
CADIVI, Venezuela’s currency exchange institution, allows dollar purchases of toilet paper as a necessary item.
The central bank has also issued an increased number of dollars to CADIVI in recent years, so BoAML is sceptical that a lack of dollars to buy toilet paper from outside Venezuela is a major factor in the shortage.
BoAML lays the blame for the crisis on the country’s price controls – the country’s “Superintendency of Just Prices” judges the highest fair price of a single roll at 4.48 Venezuelan bolivars, or $0.06 at the unofficial market rate.
However, across the border in Colombia, BoAML says that a cheap roll of toilet paper costs nearly ten times as much, at about $0.54, suggesting that toilet roll supplies are finding their way out of the country as illicit exports.
Bank of America’s Francisco Rodriguez spells it out: “These big price differences create severe distortions in economic incentives that generate and exacerbate scarcity of imported goods, particularly in those cases where price controls are strictly enforced.”
He adds that the government believes 30-40 per cent of food imports are smuggled into the neighbouring country for similar reasons, since the mark-up that can be made from price-controlled goods is so large.
While the government has tried to ration basic items like toiletries, so far it doesn’t look like these emergency measures will be enough to paper over the cracks in Venezuela’s price controls.