🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a nation accustomed to holding the US dollar.

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

Like her, economists across the spectrum expect a depreciation of the national currency after the voting concludes. The president has placed a cap on the currency to tame soaring price increases and currently it is overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to wrestle back command of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his ally to the north, and by the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to bring inflation in check. The programme shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately after a poor performance in local polls and multiple graft allegations. Solely large-scale economic support by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to implement the “will of the people” despite elite opposition.

Farage to date outlined limited plans in writing aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge for large tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour hopes this position will allow it to depict Farage as intending to bring back 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, such as it is. “Reform are bankrolled by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he explains. “There’s a tension here between rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result of the research, however, is even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for eight years, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.