🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of money changers are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation long used to saving in the greenback.

“The best time to buy is currently,” states a arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso once the election is over. President Javier Milei has imposed a limit on the peso to tame soaring price increases and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to wrestle back command of the economy from the establishment for the benefit of the people.

These defining traits are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring inflation in check. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

But financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention by the US 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 concerns about economic detail with a bullish determination to implement public demand despite the establishment’s horror.

Farage has so far committed few policies in writing aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be in flux: concerned about being accused of planning 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.

Labour hopes this position will allow it to portray Farage as intending to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her approach of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, research suggests neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head is often a tenth less in nations run by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid significant costs.