🔗 Share this article

“Dollars, dollars.” Under the blazing sun, dozens of money changers are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 congressional elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is currently,” says a arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso after the voting is over. President Javier Milei has imposed a limit on the currency to control soaring inflation and now it remains overvalued and foreign reserves are exhausted, leaving the national economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful measures to wrestle back command of economic management from traditional elites on behalf of the people.

These key characteristics are also seen in his ally to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including widespread sell-offs and deep budget reductions – had won plaudits from international lenders for helping to control price rises under control. This plan shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a dragon to be slain, regardless of the consequences.

But investors began losing confidence in the government’s agenda in recent months after a shaky result in local polls and a series of graft allegations. Solely large-scale financial intervention by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement the “will of the people” despite elite opposition.

Farage to date committed few policies to paper aside from proposals for mass deportations, that he later appeared to revise spontaneously. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of planning reckless spending, he lately dropped a promise to make large tax cuts. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to portray Farage as intending to bring back austerity – a point Rachel Reeves has made repeatedly, contrasting it with her approach of boosting government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita is often a tenth less in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” contend the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.