🔗 Share this article

“Cambio, cambio.” Under the blazing sun, scores of currency traders are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The best time to buy is now,” says a arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso after the election concludes. President Javier Milei has imposed a limit on the peso to control soaring inflation and currently it remains overvalued and reserves are depleted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his ally in the United States, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to bring price rises in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and a series of graft allegations. Only large-scale economic support from abroad has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: wary of being accused of planning reckless spending, he lately abandoned a pledge to make large tax cuts. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this stance will allow it to depict the populist as intending to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension here among rich backers who want radical free-market policies, and this story of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe often perform poorly when confronting real-world challenges (although each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, gross domestic product per head is often a tenth less in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” contend the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid significant costs.