🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are offering US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a country long used to saving in the greenback.

“The optimal moment for purchasing is now,” says one arbolito, declining to give her name. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the voting is over. President Javier Milei has placed a limit on the currency to control triple-digit price increases and now it is overvalued and foreign reserves are depleted, leaving the national economy sluggish as buyers opt for cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing forceful measures to wrestle back command of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to bring inflation under control. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda lately after a shaky result in local polls and a series of graft allegations. Only massive economic support by the US has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with a bullish determination to enact public demand despite elite opposition.

The Reform leader has so far committed few policies in writing aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he lately dropped a pledge to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour aims this stance will allow it to depict the populist as planning to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for tax cuts and deregulation, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although every populist leader claims to offer something unique).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in nations run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result of the research, though, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.