🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of currency traders are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the greenback.

“The best time to buy is now,” states one arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the voting is over. The president has imposed a cap on the currency to control soaring inflation and now it remains overvalued and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has frequently been racked by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to control inflation in check. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

But investors began losing confidence in Milei’s radical project lately after a shaky result in local polls and multiple corruption scandals. Solely massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper except for proposals for mass deportations, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem in flux: concerned about being accused of planning reckless spending, he recently dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this stance will allow it to depict Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader promises distinct solutions).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be a tenth less in countries governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, however, is despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid a heavy price.