🔗 Share this article

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

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

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso once the election is over. The president has placed a limit on the peso to control soaring inflation and currently it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular policies to wrestle back command of the economy from traditional elites on behalf of the people.

These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for contributing to bring inflation in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months after a poor performance in local polls and a series of corruption scandals. Solely large-scale financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed doubts about economic detail with a bullish determination to implement public demand in the face of the establishment’s horror.

Farage has so far committed few policies in writing except for proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour aims this position will allow it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has emphasized often, contrasting it with her approach of increasing government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the grievances of working people and the loss of industrial jobs,” he says. “There’s a tension here among wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist rulers compared to comparable countries under conventional leadership.

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

Another intriguing finding from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people have already paid significant costs.