🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a country long used to holding the greenback.

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

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the election concludes. The president has placed a cap on the peso to tame triple-digit price increases and now it remains overvalued and reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing forceful measures to reclaim command of economic management from traditional elites on behalf of the people.

These defining traits are also seen in his ally in the United States, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to bring price rises in check. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project lately after a shaky result in provincial elections and a series of corruption scandals. Solely massive economic support by the US has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror.

Farage to date outlined limited plans to paper except for proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, possibly replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict the populist as planning to bring back fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There is a conflict here among wealthy supporters seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research indicates neither left nor right populists often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

A further interesting result from the study, however, is that despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.