🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a country long used to saving in the greenback.

“The optimal moment to buy is now,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the national currency once the election is over. President Javier Milei has imposed a cap on the peso to control soaring price increases and now it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by debt defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.

The president is a textbook populist: charismatic, unconventional, vowing forceful measures to wrestle back command of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, as well as the UK politician, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to control inflation in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and a series of corruption scandals. Only large-scale financial intervention by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to enact the “will of the people” despite the establishment’s horror.

The Reform leader to date committed few policies in writing aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning reckless spending, he lately dropped a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray Farage as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist leaders than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures are often effective at retaining office, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.