🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of money changers are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation long used to saving in the US dollar.

“The best time for purchasing is currently,” says a arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. The president has placed a limit on the peso to control soaring price increases and now it remains artificially high and foreign reserves are depleted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by debt defaults and economic crises and its voters have been receptive over the years to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular measures to wrestle back control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project in recent months after a shaky result in local polls and multiple graft allegations. Only massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem unsettled: concerned about facing criticism for planning reckless spending, he recently abandoned a promise to make large tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray Farage as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he explains. “There is a conflict there among wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, research indicates neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often 10% lower in nations governed by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” contend the paper’s authors.

A further interesting result of the research, though, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

But back in Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.