🔗 Share this article

“Exchange, exchange.” Under the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the 26 October congressional elections in a nation accustomed to saving in the US dollar.

“The optimal moment for purchasing is now,” states a arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the national currency once the voting concludes. President Javier Milei has imposed a limit on the peso to tame soaring price increases and now it is artificially high and reserves are exhausted, causing the national economy stagnant as consumers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing muscular policies to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had won plaudits from international lenders for contributing to bring price rises in check. 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 slain, no matter the cost.

However investors began losing confidence in the government’s agenda lately following a poor performance in local polls and a series of graft allegations. Solely massive financial intervention by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper except for a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge for significant tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

Labour aims this position will allow it to portray the populist as planning to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and deregulation, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters who want radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, GDP per capita tends to be a tenth less in nations governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” contend the paper’s authors.

A further interesting result of the research, however, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens have already paid significant costs.