🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a nation long used to saving in the greenback.

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

Like her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting is over. The president has imposed a cap on the currency to control soaring price increases and now it remains artificially high and reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing forceful policies to wrestle back command of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his political partner to the north, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and severe public spending cuts – had won plaudits from international lenders for contributing to control price rises in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and multiple graft allegations. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

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

Farage to date outlined limited plans in writing except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge for large tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour hopes this position will enable it to portray Farage as planning to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by affluent backers demanding tax cuts and deregulation, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension here between rich backers seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when confronting real-world challenges (although each charismatic individual promises something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand 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 holding on to power, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing significant costs.