🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation long used to saving in the US dollar.

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

Similar to her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to tame soaring price increases and now it is overvalued and reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular policies to reclaim control of economic management from the establishment for the benefit of the people.

These key characteristics are shared by his political partner to the north, and by Nigel Farage, who styles 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 – including widespread sell-offs and deep public spending cuts – had won plaudits from international lenders for helping to control price rises under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda in recent months following a shaky result in provincial elections and multiple corruption scandals. Solely massive economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit 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.

The Reform leader has so far outlined limited plans in writing except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he lately abandoned a promise to make large tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to depict the populist as intending to bring back austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, Argentina’s citizens have already paid a heavy price.