🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of money changers are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is now,” says one 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 depreciation of the national currency after the voting concludes. President Javier Milei has placed a limit on the peso to control triple-digit inflation and now it is overvalued and reserves are depleted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and now the president’s conservative populism.

Milei is a textbook populist: captivating, unconventional, promising forceful measures 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 in the United States, as well as Nigel Farage, who presents himself as a beer-drinking 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 won plaudits from the IMF for helping to control price rises under control. This plan has something in common with that of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and a series of graft allegations. Only large-scale financial intervention from abroad has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans in writing aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of proposing reckless spending, he recently abandoned a promise for large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as intending to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and deregulation, but also talking a lot about the grievances of working people and the loss of industrial jobs,” he explains. “There is a conflict there among wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, research suggests populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist leaders than in comparable countries with more mainstream regimes.

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

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

Put simply, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.