🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a cap on the currency to tame triple-digit inflation and now it remains artificially high and foreign reserves are exhausted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has frequently been hit by debt defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronism, and currently the president’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular policies to wrestle back control of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his ally to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to bring 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 monster to be defeated, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project in recent months following a shaky result in provincial elections and a series of corruption scandals. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing except for a call for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: wary of being accused of proposing a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as planning to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by very wealthy people calling for tax cuts and deregulation, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe tend to fare well when faced with real-world challenges (though of course each charismatic individual promises distinct solutions).

Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

Another intriguing finding from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.