🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment for purchasing is currently,” says one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the peso to tame triple-digit inflation and now it remains artificially high and foreign reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version.

Milei is a textbook populist: captivating, unconventional, promising muscular measures to wrestle back command of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his political partner to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for helping to bring inflation under control. The programme shares similarities with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of corruption scandals. Solely large-scale economic support from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to implement public demand despite elite opposition.

Farage has so far committed few policies in writing except for proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: concerned about facing criticism for proposing reckless spending, he lately abandoned a pledge to make large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the complaints of working people and the decline in manufacturing employment,” he explains. “There is a conflict there among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises something unique).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, after 15 years, GDP per capita is often a tenth less in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result from the study, however, is despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their plans crash, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.