An economist just explained Venezuela's chronic toilet paper shortage crisis

One of the parts of Venezuela's ongoing economic crisis that has caught the attention of the international media is the country's chronic shortage of toilet paper.

Back in 2013, the problem was already so acute that the government was seizing toilet paper factories.

The problem is not that Venezuela is too poor to afford toilet paper. Though the country has experienced serious economic turmoil, as recently as 2013 GDP per capita was $14,000, a similar level to Poland.

So what is going on?

According to a note from Bank of America Merrill Lynch analyst Francisco Rodriguez, it's due in large part to a massive black-market economy in "re-exports." That's a strange phenomenon that's popping up because of the absurd gap between Venezuela's official exchange rate, and the real market rate.

Officially, you can get 6.35 Venezuelan bolivars to the US dollar, because the government says that is the currency's value. In reality, a website called dolartoday shows that a dollar is currently worth more than 800 bolivars in the real economy. Dolartoday works backwards by finding out the value of a Colombian peso to a US dollar, then compares that to the bolivar-peso exchange rate in a Colombian border city.

The gulf between the official and real values leaves massive opportunities:

Assume that an importer brings into the country $1mn of toilet paper using official dollars obtained from the government at the preferential rate (toilet paper is an essential that receives preferential dollars and is also highly scarce at its regulated price). Faced with the prospect of selling the good at regulated prices at a maximum 20% nominal profit rate, there are very high incentives for the importer or associated arbitrageurs to re-export the good and resell it abroad.

Let us assume that 50% of the imported good is re-exported under these conditions and resold at the original $500,000 price. If the importer uses those dollars to import Iphones (a good which receives no preferential dollars and is sold at unregulated prices consistent with the parallel market rate in Venezuela), then the importer will be able to capture a handsome 13,400% return and be able to consume the proceeds in Venezuela.

Not too shabby a mark-up, if you're willing to risk the government's wrath. The government has even tried to find ways to restrict access to dolartoday, even attempting to sue the US website.