🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of currency traders are hawking US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a country accustomed to holding the greenback.

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

Similar to her, economic experts across the spectrum expect a devaluation of the national currency once the election is over. The president has imposed a cap on the currency to control triple-digit price increases and currently it is artificially high and reserves are exhausted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, promising muscular policies to wrestle back control of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are shared by his ally to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately after a shaky result in provincial elections and a series of corruption scandals. Only massive economic support from abroad has averted what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this position will enable it to depict Farage as planning to reintroduce austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when confronting practical difficulties (although every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist leaders compared to comparable countries under conventional leadership.

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

Another intriguing finding of the research, though, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.