🔗 Share this article

“Exchange, exchange.” Under the blazing sun, dozens of money changers are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation long used to saving in the US dollar.

“The optimal moment to buy is now,” says a arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a depreciation of the Argentine peso once the voting concludes. President Javier Milei has placed a limit on the currency to control soaring inflation and now it is artificially high and foreign reserves are exhausted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing forceful measures to wrestle back control of the economy from traditional elites for the benefit of the people.

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

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for helping to control inflation under control. The programme shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months following a shaky result in local polls and multiple graft allegations. Solely large-scale financial intervention by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had 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” despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to curb the central bank, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His fiscal plans seem unsettled: concerned about being accused of proposing reckless spending, he recently abandoned a pledge to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will enable it to depict the populist as intending to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, but also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists tend to fare well when confronting practical difficulties (although each charismatic individual promises something unique).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be a tenth less in countries run by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing significant costs.