🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are hawking US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to saving in the greenback.

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

Like her, economists from all backgrounds expect a devaluation of the Argentine peso after the voting is over. The president has imposed a cap on the peso to tame triple-digit price increases and currently it remains artificially high and reserves are exhausted, leaving the national economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing muscular measures to wrestle back control of the economy from traditional elites for the benefit of the people.

These defining traits are shared by his ally to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for contributing to bring price rises in check. The programme has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda lately after a shaky result in provincial elections and a series of corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans in writing aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this stance will allow it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, GDP per capita is often 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, however, is even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. 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 kept on life support through foreign assistance, the Argentine people are already bearing significant costs.