🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are hawking American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment for purchasing is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency once the voting concludes. President Javier Milei has placed a limit on the currency to control soaring price increases and now it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, such as the influential Peronism, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing muscular measures to reclaim command of the economy from the establishment for the benefit of the people.

These key characteristics are shared by his political partner in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to control inflation in check. 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 slain, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project lately after a poor performance in local polls and a series of graft allegations. Only large-scale economic support from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

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 the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: wary of being accused of proposing reckless spending, he recently abandoned a promise to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this position will allow it to depict the populist as planning to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, but also emphasizing the complaints of working people and the loss of industrial jobs,” he explains. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

Recent research in the American Economic Review 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 tends to be 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result of the research, though, is that despite their economic costs, populist figures tend to be good at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.