🔗 Share this article

“Exchange, exchange.” Under the blazing sun, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation accustomed to holding the US dollar.

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

Similar to her, economic experts from all backgrounds expect a devaluation of the national currency after the election is over. President Javier Milei has imposed a limit on the peso to tame soaring inflation and currently it is artificially high and foreign reserves are exhausted, causing the national economy sluggish as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to wrestle back control of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to bring price rises in check. This plan has something in common with the policies 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 Milei’s radical project lately following a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support from abroad has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

Farage to date committed few policies in writing except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise for significant tax reductions. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

Labour aims this position will enable it to depict the populist as planning to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (although every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, GDP per capita is often 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average eight years, versus four for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.