🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The optimal moment to buy is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the election is over. The president has imposed a limit on the currency to control triple-digit price increases and now it is artificially high and reserves are exhausted, leaving Argentina’s economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, such as the powerful Peronism, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, promising forceful measures to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from international lenders for helping to bring price rises in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project in recent months following a poor performance in local polls and multiple graft allegations. Solely large-scale financial intervention by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage 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, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: concerned about being accused of planning a Liz Truss-style splurge, he lately dropped a promise for large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this position will allow it to depict the populist as planning to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension here among rich backers who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual promises distinct solutions).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be a tenth less in countries run by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, however, is that even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for eight years, versus shorter tenures 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 extends past everyday financial matters.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.