🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to holding the greenback.

“The best time to buy is currently,” states one arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency after the election is over. President Javier Milei has placed a cap on the peso to control soaring price increases and currently it is artificially high and reserves are depleted, leaving the national economy stagnant as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to wrestle back control of economic management from the establishment on behalf of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to bring inflation under control. This plan has something in common with that 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 the government’s agenda lately following a poor performance in local polls and multiple corruption scandals. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far outlined limited plans to paper except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem in flux: wary of facing criticism for proposing reckless spending, he lately dropped a pledge for large tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict Farage as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers demanding tax cuts and reduced rules, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, compared with four for their more moderate equivalents.

In other words, 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 mundane economics.

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