🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to holding the greenback.

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

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the election concludes. President Javier Milei has imposed a limit on the peso to control soaring inflation and now it remains artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has frequently been racked by debt defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful measures to reclaim command of economic management from traditional elites for the benefit of the people.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for helping to bring inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda in recent months after a poor performance in local polls and a series of corruption scandals. Solely large-scale economic support by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to implement public demand despite the establishment’s horror.

Farage to date outlined limited plans to paper aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

Labour hopes this position will enable it to portray Farage as intending to reintroduce austerity – a point Rachel Reeves has made repeatedly, contrasting it with her approach of increasing government spending.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There is a conflict here between rich backers who want Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (although every populist leader promises distinct solutions).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, GDP per capita tends to be 10% lower in countries governed by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is that even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people have already paid significant costs.