🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are selling US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a nation accustomed to saving in the greenback.

“The optimal moment for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds expect a depreciation of the national currency once the voting concludes. The president has imposed a cap on the currency to control triple-digit price increases and now it remains overvalued and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising forceful measures to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and severe public spending cuts – had won plaudits from international lenders for helping to control inflation in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in provincial elections and multiple corruption scandals. Only massive economic support by the US has prevented what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to enact public demand in the face of elite opposition.

The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise to make large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for tax cuts and deregulation, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in countries governed by populist rulers compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid significant costs.