🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of money changers are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the US dollar.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economic experts from all backgrounds anticipate a devaluation of the national currency after the election is over. President Javier Milei has imposed a limit on the currency to tame triple-digit inflation and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by debt defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing forceful measures to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Until recent months, the president’s strategy – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring price rises in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda lately following a poor performance in local polls and a series of corruption scandals. Only large-scale economic support by the US has averted what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray Farage as planning to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, contrasting it with her strategy of increasing public investment.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension there between wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, over more than a century. The study revealed typically, after 15 years, gross domestic product per head tends to be a tenth less in countries governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, however, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.