🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of currency traders are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation accustomed to holding the US dollar.

“The best time to buy is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the national currency after the election concludes. The president has placed a cap on the currency to tame soaring inflation and now it is overvalued and reserves are depleted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and now the president’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, promising forceful measures to reclaim command of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his political partner to the north, 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 – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to control inflation in check. The programme shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

But investors began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and multiple corruption scandals. Solely massive financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of elite opposition.

Farage to date committed few policies to paper aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans seem unsettled: concerned about facing criticism for proposing reckless spending, he lately dropped a pledge to make large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

Labour aims this position will enable it to portray the populist as planning to bring back austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers calling for lower taxes and deregulation, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension there between wealthy supporters who want radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often a tenth less in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

A further interesting result of the research, though, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

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