🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of money changers are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a country long used to holding the greenback.

“The best time to buy is now,” says a arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the election is over. The president has imposed a limit on the currency to control triple-digit inflation and now it remains overvalued and reserves are depleted, causing the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronism, and now the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising muscular policies to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for contributing to bring price rises in check. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely large-scale financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies in writing aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately dropped a pledge to make significant tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

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

An economics professor says there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension there between rich backers who want radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

Recent research 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 tends to be a tenth less in nations governed by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” argue the researchers.

Another intriguing finding from the study, though, is despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.