🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to holding the greenback.

“The best time for purchasing is now,” states a arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economic experts from all backgrounds expect a devaluation of the national currency once the election is over. President Javier Milei has placed a limit on the peso to control soaring price increases and currently it remains overvalued and foreign reserves are exhausted, causing the national economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular measures to reclaim control of economic management from traditional elites on behalf of the people.

These key characteristics are shared by his political partner in the United States, as well as the UK politician, who presents himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to control price rises in check. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets began losing confidence in Milei’s radical project in recent months after a poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far committed few policies in writing except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he lately abandoned a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this position will enable it to depict the populist as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there between wealthy supporters seeking radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

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

Recent research from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in countries governed by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” contend the researchers.

A further interesting result of the research, though, is that despite their economic costs, populist figures tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.