🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation accustomed to saving in the greenback.

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

Like her, economists from all backgrounds expect a depreciation of the Argentine peso once the election concludes. The president has placed a cap on the currency to tame soaring inflation and now it remains artificially high and foreign reserves are exhausted, leaving the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, promising forceful measures to reclaim control of the economy from traditional elites for the benefit 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 beer-drinking people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for contributing to bring price rises under control. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a shaky result in local polls and multiple corruption scandals. Only large-scale economic support from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

The Reform leader to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a pledge to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict there between wealthy supporters seeking radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

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

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist leaders than in similar economies under conventional leadership.

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

A further interesting result from the study, though, is despite their economic costs, populist figures tend to be good at retaining office, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens have already paid significant costs.