🔗 Share this article

“Dollars, dollars.” Under the blazing sun, dozens of money changers are selling US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a country long used to holding the US dollar.

“The optimal moment to buy is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the voting concludes. The president has placed a cap on the currency to tame triple-digit inflation and now it remains artificially high and reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive over the years to leftwing populism, such as the powerful Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to wrestle back control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his ally to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and deep budget reductions – had earned praise from international lenders for contributing to bring price rises in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in provincial elections and multiple corruption scandals. Solely large-scale 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 leader, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies in writing aside from a call for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: concerned about facing criticism for proposing reckless spending, he lately dropped a promise for large tax reductions. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray Farage as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by very wealthy people demanding tax cuts and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita is often a tenth less in nations run by populist leaders compared to similar economies under conventional leadership.

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

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

In other words, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.