🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, dozens of money changers are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a country long used to holding the US dollar.

“The best time for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency once the voting concludes. The president has placed a limit on the peso to control triple-digit inflation and now it is overvalued and foreign reserves are exhausted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, promising muscular measures to reclaim command of economic management from traditional elites on behalf of the people.

These defining traits are also seen in his political partner to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to control price rises under control. This plan has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

However investors started to doubt in the government’s agenda lately after a shaky result in provincial elections and a series of corruption scandals. Only massive financial intervention from abroad has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage to date outlined limited plans to paper except for a call for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he lately abandoned a promise to make significant tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

Labour aims this position will enable it to depict the populist as intending to reintroduce austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There is a conflict there among wealthy supporters who want radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed 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 a tenth less in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” contend the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.