🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a limit on the currency to tame triple-digit price increases and currently it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular measures to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from the IMF for contributing to bring inflation under control. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But investors started to doubt in the government’s agenda in recent months after a shaky result in provincial elections and multiple graft allegations. Solely large-scale economic support from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, swept away doubts about economic detail with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper aside from a call for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem unsettled: wary of facing criticism for planning reckless spending, he recently dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

Labour aims this position will enable it to portray the populist as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, gross domestic product per head tends to be 10% lower in countries run by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.