🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, scores of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 congressional elections in a nation long used to holding the greenback.

“The optimal moment to buy is currently,” says one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso after the voting is over. The president has imposed a cap on the currency to control triple-digit inflation and now it is artificially high and reserves are depleted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the powerful Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful measures to reclaim command of the economy from traditional elites on behalf of the people.

These defining traits are also seen in his ally in the United States, as well as the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for helping to bring inflation under control. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in Milei’s radical project lately after a shaky result in provincial elections and a series of corruption scandals. Only massive economic support by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact public demand despite elite opposition.

Farage to date outlined limited plans in writing aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about facing criticism for proposing reckless spending, he recently abandoned a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this position will enable it to depict the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict here between rich backers seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result from the study, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.