🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, scores of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is now,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the voting concludes. President Javier Milei has placed a limit on the currency to tame triple-digit inflation and currently it remains overvalued and reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Fertile Ground

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

The president is a textbook populist: captivating, iconoclastic, vowing forceful policies to reclaim control of economic management from traditional elites for the benefit of the people.

These defining traits are shared by his political partner to the north, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to control price rises under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple corruption scandals. Solely massive financial intervention from abroad has averted what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away doubts about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in 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 appear to be in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise for large tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict Farage as planning to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when faced with real-world challenges (though of course each charismatic individual promises something unique).

Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.