🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of money changers are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a nation long used to holding the greenback.

“The best time for purchasing is now,” says one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the voting is over. The president has placed a cap on the currency to control soaring price increases and currently it is artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronism, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, promising forceful 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 Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for contributing to bring price rises under control. This plan has something in common with that of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be slain, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months following a poor performance in local polls and a series of graft allegations. Solely large-scale financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, dismissed doubts about economic detail with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies in writing aside from a call for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the central bank, possibly 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 unsettled: wary of being accused of planning reckless spending, he recently abandoned a pledge for significant tax cuts. 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 planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, 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 demanding tax cuts and reduced rules, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises distinct solutions).

A recent paper from a leading journal examined the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, over the long term, GDP per capita is often a tenth less in nations governed by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” argue the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, versus four for mainstream politicians.

Put simply, it remains uncertain whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.