🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of money changers are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country long used to holding the US dollar.

“The best time to buy is currently,” states one arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso after the voting is over. President Javier Milei has imposed a cap on the currency to control soaring price increases and now it is overvalued and reserves are exhausted, leaving the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been racked by sovereign defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s conservative populism.

The president is a textbook populist: charismatic, unconventional, promising muscular policies to reclaim command of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his political partner in the United States, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and deep budget reductions – had won plaudits from international lenders for helping to control inflation in check. The programme has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple corruption scandals. Solely massive financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for mass deportations, which he subsequently appeared to revise on the hoof. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: concerned about being accused of planning reckless spending, he recently abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this position will enable it to portray the populist as planning to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of increasing government spending.

Jo Michell notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people demanding tax cuts and reduced rules, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict here between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, over more than a century. It found that on average, over the long term, GDP per capita is often 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.