🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a country accustomed to holding the greenback.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a cap on the currency to tame triple-digit price increases and currently it is overvalued and reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the powerful Peronism, and now the president’s rightwing version.

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

These defining traits are also seen in his ally to the north, and by the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to control inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately after a shaky result in provincial elections and multiple graft allegations. Solely massive economic support from abroad has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies in writing except for a call for large-scale removals, that he later seemed to adjust on the hoof. He aims to curb the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge for significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

Labour aims this stance will enable it to depict Farage as intending to bring back fiscal tightening – a point Rachel Reeves has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here between rich backers seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, after 15 years, gross domestic product per head is often 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.