🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of money changers are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The best time for purchasing is currently,” says one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the national currency once the voting is over. The president has placed a limit on the currency to tame triple-digit inflation and currently it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing forceful policies to wrestle back control of economic management from traditional elites for the benefit of the people.

These defining traits are shared by his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to bring inflation under control. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

However investors began losing confidence in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Only massive financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, swept away concerns about economic detail with confident resolve to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies to paper except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for proposing reckless spending, he lately abandoned a promise to make significant tax reductions. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

The opposition aims this stance will enable it to portray the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here between rich backers seeking Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders than in similar economies under conventional leadership.

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

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

Put simply, it is not clear that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people are already bearing significant costs.