🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the greenback.

“The optimal moment to buy is now,” says one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the election concludes. President Javier Milei has imposed a cap on the currency to tame triple-digit inflation and currently it remains artificially high and foreign reserves are depleted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to reclaim control of the economy from the establishment for the benefit of the people.

These defining traits are shared by his political partner in the United States, as well as the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to control inflation under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

But financial markets began losing confidence in Milei’s radical project lately following a poor performance in local polls and multiple corruption scandals. Only large-scale financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

Farage to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, possibly replacing its head, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently dropped a pledge for significant tax cuts. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to depict Farage as planning to reintroduce austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when faced with real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” argue the researchers.

A further interesting result from the study, however, is that even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.