🔗 Share this article

“Exchange, exchange.” Under the blazing sun, dozens of money changers are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is now,” states a arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the currency to control triple-digit price increases and currently it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by debt defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, vowing forceful policies to wrestle back command of economic management from traditional elites on behalf of the people.

These defining traits are shared by his ally in the United States, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for helping to control inflation under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months following a shaky result in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies in writing except for proposals for mass deportations, that he later appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge for significant tax reductions. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to portray the populist as intending to reintroduce austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her approach of increasing government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research indicates neither left nor right populists often perform poorly when confronting real-world challenges (although each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head is often 10% lower in nations run by populist leaders than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.