🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to saving in the greenback.

“The best time for purchasing is now,” states a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum anticipate a depreciation of the Argentine peso once the voting is over. President Javier Milei has imposed a limit on the peso to tame triple-digit price increases and now it is overvalued and reserves are depleted, leaving the national economy sluggish as buyers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, such as the powerful Peronist movement, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular measures to wrestle back control 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 Nigel Farage, who styles himself as a beer-drinking people’s champion 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 won plaudits from international lenders for contributing to control inflation in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project in recent months following a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention from abroad has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, swept away doubts about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date committed few policies in writing aside from proposals for mass deportations, which he subsequently appeared to revise on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise to make large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray the populist as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing government spending.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension here between rich backers who want radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

Recent research from a leading journal examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, gross domestic product per head is often a tenth less in nations run by populist leaders compared to comparable countries with more mainstream regimes.

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

A further interesting result of the research, though, is that even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.