🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a country long used to saving in the US dollar.

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

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso once the election is over. President Javier Milei has placed a cap on the peso to control soaring price increases and now it remains artificially high and foreign reserves are depleted, causing Argentina’s economy sluggish as buyers opt for cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, vowing muscular policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring price rises under control. This plan shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately following a poor performance in provincial elections and a series of graft allegations. Solely massive economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this position will allow it to portray Farage as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people demanding tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here between rich backers seeking radical free-market policies, and this story of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when faced with real-world challenges (though of course every populist leader promises distinct solutions).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be 10% lower in nations run by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.