🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of money changers are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a country long used to holding the greenback.

“The optimal moment to buy is currently,” states 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 from all backgrounds expect a depreciation of the Argentine peso after the election concludes. The president has imposed a limit on the currency to tame soaring inflation and now it is overvalued and foreign reserves are depleted, causing the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, promising forceful policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from international lenders for contributing to control inflation under control. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in provincial elections and a series of corruption scandals. Only massive economic support from abroad has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, the former prime minister, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader to date committed few policies to paper except for proposals for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about facing criticism for planning reckless spending, he lately abandoned a pledge for large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to portray Farage as intending to reintroduce fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course every populist leader promises distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the researchers.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.