🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, scores of money changers are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to holding the greenback.

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

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a limit on the peso to tame soaring inflation and now it remains overvalued and foreign reserves are exhausted, causing the national economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been racked by sovereign defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful policies to wrestle back control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his political partner in the United States, as well as 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, the president’s strategy – involving widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to control inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

The Reform leader to date outlined limited plans to paper aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to curb the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of proposing reckless spending, he lately dropped a pledge for large tax cuts. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of boosting public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he says. “There is a conflict there between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper 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, GDP per capita is often a tenth less in nations governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

A further interesting result of the research, however, is even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, compared with four for mainstream politicians.

In other words, it is not clear whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.