🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a country long used to holding the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the national currency after the voting is over. President Javier Milei has imposed a cap on the currency to tame soaring price increases and now it remains artificially high and foreign reserves are exhausted, causing the national economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. Argentina has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and now Milei’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, promising muscular measures to wrestle back command of the economy from traditional elites on behalf of the people.

These defining traits are shared by his ally to the north, as well as the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe budget reductions – had earned praise from international lenders for contributing to control price rises under control. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately following a poor performance in provincial elections and multiple corruption scandals. Solely large-scale financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

Farage has so far outlined limited plans in writing aside from a call 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 scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of being accused of proposing reckless spending, he lately abandoned a pledge to make significant tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe often perform poorly when faced with real-world challenges (though of course each charismatic individual promises distinct solutions).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be a tenth less in nations run by populist rulers than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, however, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid a heavy price.