🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of money changers are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to holding the greenback.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a limit on the peso to control triple-digit inflation and now it is artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and currently Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing forceful measures to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his political partner to the north, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from international lenders for contributing to bring price rises under control. This plan shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a monster to be defeated, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has prevented what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to enact public demand in the face of elite opposition.

Farage to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge for significant tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition hopes this position will allow it to portray the populist as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict here between wealthy supporters who want radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

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

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often a tenth less in nations governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.