🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of money changers are hawking American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country long used to saving in the greenback.

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

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso after the voting concludes. The president has placed a limit on the peso to control triple-digit inflation and now it is artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

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

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who presents himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project in recent months after a shaky result in local polls and multiple corruption scandals. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement public demand in the face of elite opposition.

Farage has so far outlined limited plans to paper aside from proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans seem unsettled: concerned about facing criticism for proposing reckless spending, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, Richard Tice, stated they would focus 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.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with practical difficulties (although each charismatic individual promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, GDP per capita is often a tenth less in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.