🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are hawking American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is currently,” says a arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso after the election concludes. President Javier Milei has placed a cap on the peso to control soaring price increases and now it remains artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been racked by debt defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful policies to wrestle back command of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by 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 widespread sell-offs and severe budget reductions – had earned praise from international lenders for contributing to control price rises under control. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Solely massive economic support by the US has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies in writing aside from proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem unsettled: concerned about being accused of planning reckless spending, he lately abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition hopes this stance will allow it to portray Farage as intending to reintroduce austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer something unique).

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, gross domestic product per head is often 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the researchers.

Another intriguing finding from the study, however, is even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for eight years, compared with four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.