🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the US dollar.

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

Like her, economists across the spectrum anticipate a depreciation of the Argentine peso after the voting is over. President Javier Milei has imposed a cap on the peso to tame triple-digit inflation and currently it is overvalued and reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, promising forceful policies to reclaim control of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to control inflation in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of corruption scandals. Solely massive economic support from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he lately dropped a promise for significant tax reductions. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this stance will allow it to portray Farage as planning to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this story of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence indicates neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader promises distinct solutions).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

A further interesting result of the research, though, is even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.