🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country accustomed to saving in the greenback.

“The best time for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the election concludes. The president has placed a cap on the currency to control triple-digit inflation and now it remains artificially high and foreign reserves are depleted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by sovereign 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 now the president’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular policies to wrestle back command of the economy from the establishment on behalf of ordinary citizens.

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

Up until lately, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from the IMF for helping 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 dragon to be slain, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project in recent months after a shaky result in local polls and a series of corruption scandals. Solely massive financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader to date outlined limited plans in writing except for proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for planning reckless spending, he lately dropped a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

The opposition aims this position will enable it to portray Farage as planning to bring back fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders than in similar economies under conventional leadership.

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

Another intriguing finding from the study, though, is that despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for a considerable time, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, Argentina’s citizens have already paid a heavy price.