🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation accustomed to holding the US dollar.

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

Like her, economists across the spectrum expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a limit on the peso to tame triple-digit price increases and now it remains overvalued and foreign reserves are depleted, causing the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the powerful Peronism, and currently the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing forceful measures to reclaim control of the economy from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from the IMF for helping to control price rises under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost.

But investors started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple corruption scandals. Only large-scale financial intervention by the US has averted what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” despite elite opposition.

The Reform leader to date committed few policies in writing aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

Labour aims this position will enable it to portray Farage as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of restoring British jobs and industrial revival.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises 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, gross domestic product per head tends to be 10% lower in countries run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.