🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of money changers are selling American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country accustomed to holding the greenback.

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

Like her, economists from all backgrounds expect a devaluation of the Argentine peso after the election concludes. President Javier Milei has imposed a cap on the peso to tame triple-digit price increases and currently it remains overvalued and reserves are depleted, causing the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing forceful policies to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for helping to control inflation in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

But financial markets began losing confidence in the government’s agenda lately following a shaky result in local polls and a series of graft allegations. Only massive financial intervention by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact public demand in the face of elite opposition.

Farage to date committed few policies to paper except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: wary of facing criticism for planning reckless spending, he lately dropped a promise for large tax cuts. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

Labour hopes this stance will enable it to depict Farage as intending to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “Reform is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader claims to offer something unique).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

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 have already paid a heavy price.