🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of money changers are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, refusing to provide her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the peso to tame triple-digit inflation and currently it remains artificially high and reserves are depleted, leaving Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, promising forceful measures to wrestle back command of economic management from traditional elites on behalf of the people.

These key characteristics are shared by his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and deep public spending cuts – had earned praise from international lenders for contributing to bring inflation in check. The programme shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months following a shaky result in local polls and a series of graft allegations. Solely massive economic support from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to implement public demand despite the establishment’s horror.

Farage has so far outlined limited plans to paper except for a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for proposing reckless spending, he lately dropped a promise to make large tax reductions. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition hopes this position will allow it to depict the populist as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here between wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.