🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to holding the greenback.

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

Like her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the election is over. The president has placed a cap on the peso to control soaring price increases and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the influential Peronism, and currently Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful policies to wrestle back control of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his ally to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits 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 inflation as a monster to be defeated, no matter the cost.

However investors started to doubt in Milei’s radical project in recent months following a shaky result in local polls and multiple corruption scandals. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to implement public demand despite the establishment’s horror.

Farage to date outlined limited plans in writing aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: concerned about being accused of planning reckless spending, he lately abandoned a pledge to make large tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (although every populist leader claims to offer something unique).

Recent research from a leading journal analysed the performance of dozens of populist leaders, over more than a century. It found typically, after 15 years, gross domestic product per head is often a tenth less in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” contend the researchers.

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.