🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of currency traders are offering American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to holding the greenback.

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

Similar to her, economists across the spectrum anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the peso to tame triple-digit price increases and now it remains overvalued and foreign reserves are depleted, causing the national economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to control price rises in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and multiple 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 in 2016 arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

Farage to date committed few policies in writing except for a call for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for planning reckless spending, he recently abandoned a pledge for significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will enable it to portray Farage as planning to reintroduce austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers demanding tax cuts and deregulation, but also emphasizing the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, versus four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens have already paid significant costs.