🔗 Share this article

“Dollars, dollars.” Under the blazing sun, scores of currency traders are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation long used to saving in the greenback.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the peso to tame soaring price increases and now it remains overvalued and foreign reserves are depleted, causing the national economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising muscular policies to reclaim command of economic management from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – 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 dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Solely massive economic support by the US has prevented what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour aims this stance will allow it to depict Farage as planning to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus four for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid a heavy price.