🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment for purchasing is currently,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum anticipate a depreciation of the national currency after the voting is over. The president has imposed a cap on the currency to control soaring inflation and currently it is artificially high and reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the powerful Peronism, and now the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular policies to wrestle back command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to bring inflation under control. This plan 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 investors began losing confidence in Milei’s radical project in recent months after a poor performance in local polls and multiple graft allegations. Solely large-scale economic support by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement public demand in the face of elite opposition.

Farage has so far outlined limited plans to paper aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning reckless spending, he recently dropped a promise to make large tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray Farage as planning to bring back austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “The party is funded by affluent backers demanding tax cuts and deregulation, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he says. “There’s a tension here between rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

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

Another intriguing finding of the research, though, is even with their negative impacts, populist figures tend to be good at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.