🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, dozens of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to control soaring inflation and currently it is artificially high and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently the president’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, promising muscular measures to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to bring inflation in check. This plan has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

However investors started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and multiple graft allegations. Only massive economic support by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader has so far committed few policies in writing except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make large tax reductions. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension here between wealthy supporters who want radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist rulers than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

Another intriguing finding from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

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