🔗 Share this article

“Exchange, exchange.” Under the blazing sun, dozens of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment to buy is currently,” states one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economic experts across the spectrum expect a devaluation of the national currency once the voting is over. The president has imposed a cap on the currency to tame soaring inflation and currently it is overvalued and foreign reserves are depleted, causing the national economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been receptive for decades to leftwing populism, such as the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, promising forceful policies to wrestle back control of economic management from traditional elites for the benefit of the people.

These key characteristics are shared by his political partner to the north, and by the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to control inflation under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months after a shaky result in provincial elections and multiple graft allegations. Solely massive financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had 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” in the face of the establishment’s horror.

Farage to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for proposing reckless spending, he recently abandoned a promise for large tax cuts. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict the populist as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he explains. “There’s a tension here between wealthy supporters seeking radical free-market policies, and this story of restoring UK employment and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual claims to offer something unique).

Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, however, is despite their economic costs, populist figures are often effective at holding on to power, lasting on average a considerable time, versus four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.