🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the peso to control triple-digit price increases and now it remains overvalued and reserves are depleted, leaving the national economy stagnant as buyers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently the president’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to wrestle back control of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from international lenders for helping to control inflation under control. The programme has something in common with the policies of his political hero 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 the government’s agenda in recent months following a shaky result in provincial elections and multiple graft allegations. Only large-scale financial intervention from abroad has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to enact the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans to paper except for a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for proposing reckless spending, he lately dropped a promise for large tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for tax cuts and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict here among rich backers who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (although every populist leader claims to offer something unique).

Recent research in the American Economic Review examined the outcomes of dozens of populist leaders, over more than a century. The study revealed that on average, after 15 years, gross domestic product per head tends to be a tenth less in nations run by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” 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, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.