🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the voting is over. The president has imposed a limit on the currency to tame triple-digit inflation and currently it is overvalued and reserves are depleted, causing the national economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronist movement, and now the president’s conservative populism.

Milei is a textbook populist: captivating, unconventional, promising muscular measures to reclaim control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. This plan has something in common with that of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Only massive economic support by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

Farage to date committed few policies to paper except for proposals for mass deportations, that he later appeared to revise spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of planning reckless spending, he lately abandoned a pledge for large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There’s a tension there among wealthy supporters seeking radical free-market policies, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, over more than a century. The study revealed typically, after 15 years, gross domestic product per head is often a tenth less in nations run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens have already paid significant costs.