🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The optimal moment to buy is now,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency once the voting is over. President Javier Milei has imposed a cap on the currency to control soaring inflation and currently it is artificially high and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has frequently been hit by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing forceful measures to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by the UK politician, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to bring price rises in check. The programme has something in common with that of his political hero Margaret Thatcher, who also saw rising prices as a monster to be defeated, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately following a poor performance in local polls and a series of corruption scandals. Only massive economic support from abroad has averted what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact the “will of the people” despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax reductions. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to portray Farage as intending to bring back austerity – a point the chancellor has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there among wealthy supporters who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, research suggests neither left nor right populists tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer something unique).

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 typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.