🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, dozens of money changers are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a country long used to holding the US dollar.

“The best time to buy is currently,” says a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum expect a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a limit on the peso to control soaring inflation and now it remains artificially high and reserves are depleted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and now the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular measures to reclaim command of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his ally to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and deep budget reductions – had earned praise from international lenders for helping to control price rises under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project in recent months following a poor performance in provincial elections and multiple graft allegations. Solely massive economic support by the US has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

Farage to date committed few policies to paper aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions 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 dropped a promise to make significant tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as intending to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in countries run by populist rulers compared to comparable countries under conventional leadership.

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

Another intriguing finding from the study, though, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.