🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of currency traders are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country long used to holding the greenback.

“The best time to buy is currently,” says a arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the national currency after the voting is over. President Javier Milei has imposed a limit on the currency to tame soaring inflation and currently it is artificially high and foreign reserves are exhausted, leaving the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular policies to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

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

Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to control price rises under control. This plan has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem in flux: concerned about being accused of planning reckless spending, he recently dropped a pledge for significant tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding tax cuts and deregulation, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates neither left nor right populists tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often 10% lower in countries run by populist rulers compared to comparable countries under conventional leadership.

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

Another intriguing finding from the study, however, is despite their economic costs, populist figures are often effective at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.