🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of money changers are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a country long used to saving in the greenback.

“The best time for purchasing is currently,” states a arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to control soaring price increases and now it remains overvalued and foreign reserves are depleted, causing the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly hit by debt defaults and economic crises and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronism, and now Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular measures to reclaim control of the economy from the establishment on behalf of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to control inflation in check. The programme has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project in recent months after a poor performance in local polls and a series of corruption scandals. Solely massive financial intervention from abroad has averted what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about being accused of planning reckless spending, he recently dropped a promise for significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict the populist as planning to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here between rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

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

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often a tenth less in countries governed by populist leaders than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the researchers.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, 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 regain sovereignty, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.