🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” says one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the voting concludes. The president has imposed a cap on the peso to control triple-digit price increases and currently it is artificially high and foreign reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the powerful Peronism, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising muscular measures to reclaim command of the economy from traditional elites on behalf of the people.

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to control price rises in check. This plan has something in common with that of his political hero the former UK prime minister, who also saw 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 poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has prevented what looked set to become a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to implement public demand in the face of elite opposition.

Farage to date outlined limited plans in writing except for proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of proposing reckless spending, he recently dropped a promise for large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here between rich backers seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when faced with real-world challenges (though of course every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries governed by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.