🔗 Share this article

“Dollars, dollars.” Under the blazing sun, scores of currency traders are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to saving in the greenback.

“The optimal moment to buy is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts across the spectrum anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has imposed a limit on the peso to control soaring price increases and now it remains overvalued and reserves are depleted, causing the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by sovereign defaults and economic crises and the electorate have been receptive over the years to leftwing populism, in the form of the powerful Peronist movement, and currently Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, promising forceful measures to reclaim command of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his political partner to the north, and by the UK politician, who presents himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from international lenders for helping to bring price rises in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, 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 lately following a shaky result in local polls and multiple graft allegations. Solely large-scale economic support from abroad has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

Farage has so far outlined limited plans in writing except for a call for mass deportations, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a pledge for large tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as planning to bring back fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “Reform is funded by very wealthy people demanding lower taxes and deregulation, yet also emphasizing the grievances 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 narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting practical difficulties (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, over the long term, GDP per capita is often 10% lower in countries run by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is despite their economic costs, populist figures tend to be good at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.