🔗 Share this article

“Exchange, exchange.” Under the blazing sun, scores of money changers are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country long used to holding the US dollar.

“The best time for purchasing is currently,” says one arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economic experts from all backgrounds expect a depreciation of the national currency after the voting concludes. The president has placed a limit on the peso to tame soaring inflation and currently it is artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. Argentina has frequently been racked by debt defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s rightwing version.

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

These key characteristics are shared by his political partner to the north, and by the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had earned praise from international lenders for contributing to bring inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of corruption scandals. Only large-scale financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of elite opposition.

Farage to date committed few policies in writing except for a call for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: wary of being accused of proposing reckless spending, he recently dropped a promise to make large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will enable it to portray the populist as planning to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with real-world challenges (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often a tenth less in nations run by populist rulers than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” contend the researchers.

A further interesting result from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.