🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is currently,” states a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the national currency after the election concludes. President Javier Milei has placed a limit on the currency to tame soaring price increases and now it is artificially high and foreign reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, such as the powerful Peronism, and now the president’s conservative populism.

The president is a textbook populist: charismatic, iconoclastic, vowing muscular policies to wrestle back control of economic management from the establishment on behalf of ordinary citizens.

These defining traits are also seen in his ally in the United States, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had earned praise from international lenders for contributing to bring price rises in check. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and a series of graft allegations. Only massive economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies to paper aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to portray the populist as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the grievances of working people and the loss of industrial jobs,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists often perform poorly when confronting practical difficulties (though of course every populist leader promises distinct solutions).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, over more than a century. The study revealed that on average, over the long term, GDP per capita is often a tenth less in nations run by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, however, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained by external aid, Argentina’s citizens have already paid significant costs.