🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” states a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts across the spectrum expect a devaluation of the Argentine peso after the election is over. The president has imposed a limit on the peso to control triple-digit price increases and currently it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and now Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, promising muscular policies to wrestle back control of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from international lenders for contributing to bring inflation in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be slain, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Solely massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies in writing except for a call for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing government spending.

Jo Michell says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head is often 10% lower in countries run by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” contend the paper’s authors.

A further interesting result from the study, though, is that even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

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

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens have already paid significant costs.