🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of money changers are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a nation long used to holding the greenback.

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

Like her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the peso to control soaring inflation and now it is overvalued and reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been hit by debt defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the powerful Peronism, and now the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising forceful measures to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits 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 public school-educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation in check. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months following a poor performance in provincial elections and multiple graft allegations. Solely massive 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 some of the same logic, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to implement public demand despite the establishment’s horror.

Farage to date committed few policies to paper except for a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately dropped a pledge to make large tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to depict the populist as planning to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is despite their economic costs, these leaders tend to be good 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 immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.