🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of currency traders are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a country accustomed to holding the US dollar.

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

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the election concludes. The president has imposed a cap on the peso to control soaring inflation and currently it remains artificially high and foreign reserves are exhausted, leaving the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful measures to wrestle back control of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and deep budget reductions – had earned praise from international lenders for helping to bring price rises under control. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and a series of graft allegations. Only massive financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact public demand despite elite opposition.

Farage to date outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately abandoned a pledge for large tax reductions. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as planning to bring back austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There’s a tension here between rich backers seeking radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research indicates populists of any stripe often perform poorly when faced with real-world challenges (although each charismatic individual promises something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, 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 regain sovereignty, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.