🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is now,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the election is over. The president has placed a limit on the peso to tame soaring inflation and currently it remains artificially high and reserves are depleted, causing Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been racked by debt defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular measures to reclaim command of the economy from the establishment 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 beer-drinking people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to control inflation in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a poor performance in provincial elections and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of being accused of planning reckless spending, he lately abandoned a promise for significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour aims this position will allow it to portray Farage as intending to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research indicates populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be a tenth less in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, though, is even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for eight years, versus shorter tenures for mainstream politicians.

Put simply, it remains uncertain 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 everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, the Argentine people are already bearing significant costs.