🔗 Share this article

“Dollars, dollars.” Under the blazing sun, scores of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” states one arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a devaluation of the national currency once the election is over. The president has imposed a limit on the currency to control soaring inflation and now it is artificially high and foreign reserves are depleted, causing the national economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronism, and currently Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his ally to the north, as well as the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to bring price rises in check. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project in recent months after a shaky result in local polls and multiple graft allegations. Only large-scale financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to implement the “will of the people” despite elite opposition.

Farage to date outlined limited plans in writing aside from proposals for mass deportations, that he later appeared to revise spontaneously. He wants to rein in the central bank, possibly replacing its head, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this position will enable it to depict the populist as planning to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and reduced rules, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when confronting real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often a tenth less in countries run by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the researchers.

A further interesting result of the research, though, is that despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.