🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of money changers are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” says one arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso after the election is over. President Javier Milei has placed a limit on the peso to control soaring inflation and now it remains artificially high and reserves are depleted, causing the national economy stagnant as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by debt defaults and economic crises and the electorate have been receptive 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: charismatic, iconoclastic, promising muscular policies to reclaim command of economic management from the establishment on behalf of the people.

These key characteristics are shared by his ally in the United States, as well as the UK politician, 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 – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project in recent months following a shaky result in provincial elections and a series of corruption scandals. Solely large-scale financial intervention by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

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 curb the Bank of England, possibly replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge for significant tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this position will allow it to portray the populist as planning to reintroduce austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict there between rich backers seeking radical free-market policies, and this story of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita is often a tenth less in countries governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.