🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of money changers are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation accustomed to saving in the US dollar.

“The best time to buy is currently,” states a arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the voting is over. The president has imposed a limit on the currency to tame soaring price increases and currently it remains artificially high and foreign reserves are exhausted, causing the national economy stagnant as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and now Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, promising forceful measures to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to control price rises under control. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

However investors began losing confidence in Milei’s radical project lately following a shaky result in provincial elections and a series of graft allegations. Only massive economic support from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

Farage has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of proposing reckless spending, he recently dropped a pledge for significant tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this position will allow it to depict Farage as planning to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people calling for tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result of the research, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.