🔗 Share this article

“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the greenback.

“The best time for purchasing is now,” says a arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a devaluation of the Argentine peso once the voting is over. President Javier Milei has imposed a cap on the currency to control triple-digit price increases and now it remains artificially high and reserves are exhausted, causing Argentina’s economy sluggish as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, such as the influential Peronism, and currently the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising forceful policies to wrestle back control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for helping to control inflation in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

But investors began losing confidence in Milei’s radical project lately after a poor performance in local polls and multiple graft allegations. Solely large-scale financial intervention from abroad has averted what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to enact public demand despite elite opposition.

The Reform leader has so far committed few policies in writing aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: wary of being accused of planning reckless spending, he lately abandoned a pledge for significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray Farage as planning to reintroduce fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by very wealthy people calling for tax cuts and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “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, the evidence indicates populists of any stripe often perform poorly when confronting real-world challenges (although each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” contend the researchers.

A further interesting result of the research, though, is even with their negative impacts, populist figures tend to be good at retaining office, lasting on average eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.