🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of money changers are offering US dollars 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 saving in the US dollar.

“The best time to buy is now,” says one 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 from all backgrounds expect a depreciation of the Argentine peso once the election is over. The president has imposed a limit on the currency to tame soaring inflation and now it is artificially high and reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to reclaim control of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from international lenders for contributing to control price rises in check. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project in recent months after a shaky result in local polls and a series of corruption scandals. Solely large-scale financial intervention from abroad has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts about economic detail with a bullish determination to enact public demand despite elite opposition.

Farage to date outlined limited plans to paper except for proposals for mass deportations, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be in flux: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to portray the populist as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist rulers than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result of the research, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid a heavy price.