🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of currency traders are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is now,” states one arbolito, declining to give her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the election is over. President Javier Milei has imposed a limit on the currency to tame soaring inflation and now it remains artificially high and reserves are depleted, causing the national economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, vowing forceful measures to reclaim command of the economy from traditional elites for the benefit of the people.

These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to bring inflation under control. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project in recent months after a poor performance in provincial elections and a series of graft allegations. Solely massive financial intervention by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

Farage to date outlined limited plans to paper aside from a call for mass deportations, that he later appeared to revise on the hoof. He wants to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour aims this stance will allow it to depict the populist as intending to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers seeking radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, over more than a century. It found that on average, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist rulers than in similar economies under conventional leadership.

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

A further interesting result of the research, though, is that even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.