🔗 Share this article

“Dollars, dollars.” Under the blazing sun, dozens of money changers are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the election concludes. The president has imposed a limit on the currency to tame soaring inflation and currently it is overvalued and foreign reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to reclaim control of the economy from the establishment on behalf of the people.

These defining traits are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring price rises in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

But financial markets began losing confidence in the government’s agenda lately after a poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to enact public demand in the face of elite opposition.

The Reform leader to date outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise on the hoof. He wants to curb the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of facing criticism for proposing reckless spending, he lately abandoned a pledge for large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this stance will allow it to depict the populist as intending to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, but also talking a lot about the grievances 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 British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often a tenth less in nations run by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.