🔗 Share this article

“Exchange, exchange.” Under the blazing sun, scores of money changers are selling US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to holding the greenback.

“The optimal moment to buy is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the voting is over. The president has placed a cap on the peso to tame triple-digit price increases and now it is overvalued and 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 been repeatedly hit by sovereign defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular policies to reclaim command of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his political partner in the United States, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had won plaudits from the IMF for helping to bring inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of graft allegations. Solely massive financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies to paper except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He wants to rein in the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour aims this position will enable it to portray the populist as intending to reintroduce austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension there among rich backers who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita is often 10% lower in nations run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, though, 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, versus four for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, Argentina’s citizens are already bearing significant costs.