🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation long used to holding the greenback.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the voting concludes. President Javier Milei has placed a limit on the peso to tame soaring inflation and currently it is overvalued and reserves are depleted, causing the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful policies to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to bring inflation under control. This plan has something in common with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

But investors started to doubt in Milei’s radical project lately after a poor performance in provincial elections and a series of graft allegations. Only massive economic support by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

Farage to date committed few policies to paper except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge for significant tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this stance will enable it to portray Farage as intending to bring back austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” contend the researchers.

Another intriguing finding of the research, however, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.