🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The best time to buy is currently,” states one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting is over. President Javier Milei has placed a limit on the currency to control triple-digit price increases and currently it remains overvalued and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been hit by sovereign defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, vowing muscular policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to control inflation in check. This plan has something in common with that of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But investors began losing confidence in Milei’s radical project lately after a shaky result in local polls and a series of corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to implement public demand despite the establishment’s horror.

Farage has so far committed few policies to paper except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of proposing reckless spending, he lately dropped a promise to make large tax reductions. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray the populist as planning to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of boosting government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here among wealthy supporters who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal examined the performance 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 leaders than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” argue the researchers.

Another intriguing finding from the study, however, is that despite their economic costs, populist figures are often effective at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

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.