🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” says a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economists across the spectrum anticipate a devaluation of the national currency after the election concludes. President Javier Milei has imposed a limit on the currency to tame soaring price increases and currently it remains overvalued and reserves are depleted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to wrestle back control of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his ally to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to bring price rises in check. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project in recent months after a poor performance in local polls and multiple graft allegations. Solely massive financial intervention by the US has averted what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of being accused of planning reckless spending, he lately dropped a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict Farage as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict there between wealthy supporters seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita tends to be 10% lower in countries governed by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

A further interesting result from the study, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing significant costs.