🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting concludes. The president has placed a limit on the currency to tame soaring inflation and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, such as the powerful Peronism, and currently the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control inflation under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a poor performance in local polls and a series of graft allegations. Solely large-scale financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement public demand despite the establishment’s horror.

Farage to date outlined limited plans to paper aside from a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition aims this position will allow it to portray the populist as planning to bring back austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

Jo Michell says there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, 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 in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in countries run by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” argue the researchers.

A further interesting result from the study, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid a heavy price.