🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of money changers are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to saving in the greenback.

“The optimal moment to buy is currently,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the voting concludes. The president has imposed a limit on the peso to tame soaring price increases and currently it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and now the president’s conservative populism.

The president is a textbook populist: charismatic, iconoclastic, vowing muscular policies to reclaim control 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 styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to control price rises under control. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However investors started to doubt in Milei’s radical project in recent months following a poor performance in local polls and multiple graft allegations. Only massive economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed concerns about economic detail with a bullish determination to implement public demand despite elite opposition.

Farage to date committed few policies in writing except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately dropped a promise to make significant tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict Farage as intending to reintroduce austerity – a point the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among wealthy supporters who want Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, GDP per capita is often 10% lower in nations governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” contend the paper’s authors.

A further interesting result from the study, however, is that despite their economic costs, these leaders tend to be good at retaining office, remaining in power for 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. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, the Argentine people have already paid significant costs.