🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of money changers are offering American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the 26 October congressional elections in a nation long used to holding the greenback.

“The best time to buy is now,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the national currency once the voting concludes. The president has placed a limit on the peso to control soaring price increases and now it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, promising muscular measures to wrestle back command of the economy from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for helping to bring price rises in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately following a shaky result in provincial elections and multiple corruption scandals. Solely large-scale financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact public demand despite the establishment’s horror.

The Reform leader to date committed few policies to paper aside from proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge for significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here 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 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 outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be a tenth less in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, 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.

In other words, it is not clear that even when their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

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