🔗 Share this article

“Dollars, dollars.” Under the blazing sun, scores of money changers are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to saving in the greenback.

“The optimal moment to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has imposed a cap on the currency to control triple-digit inflation and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has frequently been racked by debt defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to reclaim command of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to bring price rises in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But investors began losing confidence in Milei’s radical project lately after a shaky result in provincial elections and a series of corruption scandals. Solely massive economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader has so far committed few policies to paper aside from a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make large tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour aims this stance will enable it to portray Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict there between rich backers seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, research indicates 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 from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita is often 10% lower in countries run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, however, is even with their negative impacts, populist figures tend to be good at retaining office, lasting on average eight years, compared with four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.