🔗 Share this article

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

“The best time to buy is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso after the election concludes. President Javier Milei has placed a cap on the currency to control soaring inflation and now it remains overvalued and reserves are depleted, leaving the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been racked by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, promising muscular policies to reclaim command of the economy from the establishment on behalf of ordinary citizens.

These defining traits are shared by his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to control inflation under control. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately after a shaky result in provincial elections and a series of corruption scandals. Solely massive financial intervention by the US has averted what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the central bank, 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: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise for significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her approach of boosting government spending.

Jo Michell says there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers demanding lower taxes and reduced rules, but also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here among rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (although each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be a tenth less in nations governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, however, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid significant costs.