🔗 Share this article

“Dollars, dollars.” Under the blazing sun, dozens of money changers are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a country accustomed to holding the greenback.

“The best time to buy is currently,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds anticipate a devaluation of the national currency once the election is over. President Javier Milei has imposed a cap on the peso to control soaring price increases and now it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing muscular measures to reclaim control of economic management from traditional elites for the benefit of the people.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to bring price rises in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of corruption scandals. Solely massive financial intervention by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper except for proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as intending to bring back austerity – an argument the chancellor has emphasized often, contrasting it with her approach of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, GDP per capita is often a tenth less in countries governed by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, the Argentine people have already paid significant costs.