🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of currency traders are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a country accustomed to saving in the US dollar.

“The optimal moment for purchasing is currently,” states a arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the national currency after the election concludes. The president has imposed a limit on the peso to tame triple-digit inflation and now it is artificially high and reserves are depleted, causing Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, such as the powerful Peronist movement, and currently Milei’s rightwing version.

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

These key characteristics are shared by his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from international lenders for contributing to control inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project in recent months after a shaky result in local polls and multiple corruption scandals. Only large-scale economic support by the US has averted what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” despite elite opposition.

The Reform leader to date committed few policies to paper aside from a call for mass deportations, that he later seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make large tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as intending to reintroduce austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of increasing public investment.

An economics professor says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers seeking radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, over more than a century. The study revealed that on average, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.