🔗 Share this article

“Dollars, dollars.” Under the blazing sun, scores of money changers are hawking American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a nation long used to saving in the US dollar.

“The optimal moment for purchasing is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the election is over. President Javier Milei has placed a limit on the peso to tame triple-digit price increases and currently it remains artificially high and reserves are depleted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. 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 powerful Peronist movement, and currently Milei’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, vowing forceful policies to wrestle back command of economic management from the establishment on behalf of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to bring inflation under control. This plan has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a dragon to be defeated, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months following a shaky result in local polls and a series of graft allegations. Only massive financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

Farage has so far outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for planning reckless spending, he lately abandoned a promise to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour aims this stance will allow it to depict Farage as planning to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension there among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader promises distinct solutions).

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 that on average, over the long term, GDP per capita tends to be 10% lower in countries run by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is that despite their economic costs, populist figures tend to be good at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.