🔗 Share this article

“Dollars, dollars.” Under the scorching heat, scores of currency traders are offering American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the 26 October midterm elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is now,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds anticipate a depreciation of the national currency after the voting is over. The president has imposed a cap on the peso to tame triple-digit inflation and now it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to reclaim control of the economy from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control price rises in check. This plan has something in common with that of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

However investors started to doubt in Milei’s radical project in recent months after a shaky result in provincial elections and multiple graft allegations. Solely massive 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 arguably had some of the same logic, and its figurehead, 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 in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

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

Labour hopes this stance will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader promises 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 typically, after 15 years, GDP per capita is often 10% lower in countries governed by populist rulers compared to similar economies under conventional leadership.

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

A further interesting result from the study, though, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid a heavy price.