🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of currency traders are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” says a arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the national currency once the election is over. The president has imposed a cap on the currency to tame triple-digit inflation and currently it remains artificially high and reserves are depleted, leaving the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful measures to wrestle back command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for helping to bring inflation under control. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost.

However financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Only large-scale economic support by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for mass deportations, that he later appeared to revise on the hoof. He aims to curb the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of planning reckless spending, he recently dropped a promise to make significant tax reductions. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as intending to bring back austerity – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people demanding lower taxes and deregulation, yet also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, research suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course every populist leader promises something unique).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head tends to be 10% lower in nations run by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.