🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, scores of money changers are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The best time to buy is now,” says one arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum anticipate a depreciation of the national currency once the voting is over. President Javier Milei has placed a cap on the peso to control triple-digit inflation and currently it remains artificially high and foreign reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the influential Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising forceful measures to reclaim control of the economy from the establishment for the benefit of the people.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to control price rises in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda in recent months following a shaky result in local polls and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise on the hoof. He aims to curb the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning reckless spending, he lately dropped a promise to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour aims this stance will enable it to depict the populist as planning to bring back fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party is funded by affluent backers calling for lower taxes and deregulation, but also emphasizing the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict there between wealthy supporters who want Thatcherism on steroids, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

Recent research 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 is often a tenth less in countries governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result of the research, however, is that despite their economic costs, these leaders are often effective at retaining office, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

But back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.