🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to holding the US dollar.

“The best time for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. President Javier Milei has imposed a limit on the peso to tame soaring inflation and now it remains overvalued and foreign reserves are exhausted, causing the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the influential Peronism, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful policies to wrestle back command of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to bring price rises in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months after a shaky result in local polls and multiple graft allegations. Solely massive financial intervention by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

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

The Reform leader has so far outlined limited plans to paper aside from proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he lately dropped a promise for significant tax cuts. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, the Argentine people have already paid significant costs.