🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a nation long used to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the voting is over. The president has placed a cap on the peso to control triple-digit inflation and currently it remains artificially high and reserves are depleted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises 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 is a textbook populist: captivating, iconoclastic, 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 political partner to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to control price rises in check. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However financial markets started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and a series of corruption scandals. Solely large-scale financial intervention by the US has prevented what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to implement the “will of the people” despite elite opposition.

Farage to date committed few policies in writing except for proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to depict the populist as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding lower taxes and deregulation, but also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe tend to fare well when faced with real-world challenges (although each charismatic individual promises something unique).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding of the research, however, is even with their negative impacts, populist figures are often effective at retaining office, remaining in power for a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.