🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of currency traders are offering US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the greenback.

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

Like her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. The president has placed a cap on the currency to tame triple-digit price increases and now it remains artificially high and reserves are depleted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

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 left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing muscular measures to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to bring price rises under control. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of corruption scandals. Solely massive economic support from abroad has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: concerned about being accused of planning reckless spending, he recently dropped a promise for large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to portray the populist as intending to bring back austerity – a point the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party are bankrolled by very wealthy people demanding tax cuts and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries run by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, however, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.