🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is now,” says a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economic experts from all backgrounds anticipate a devaluation 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 foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by debt defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the influential Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to reclaim control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to bring inflation under control. The programme shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months after a poor performance in local polls and a series of graft allegations. Solely large-scale economic support by the US has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

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

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers demanding lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here between rich backers who want Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, over the long term, GDP per capita tends to be 10% lower in nations run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” contend the researchers.

A further interesting result from the study, however, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

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