🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are offering US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The optimal moment to buy is currently,” states one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso once the voting concludes. President Javier Milei has imposed a cap on the peso to control triple-digit inflation and now it is artificially high and reserves are depleted, causing Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronism, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to wrestle back command of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to control price rises under control. This plan has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately after a shaky result in local polls and multiple graft allegations. Solely large-scale economic support from abroad has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to enact the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans in writing except for a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to curb the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately dropped a pledge for large tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour hopes this position will allow it to depict Farage as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting real-world challenges (although each charismatic individual promises distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita tends to be a tenth less in countries run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, though, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.