🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country long used to saving in the greenback.

“The optimal moment to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso after the election concludes. President Javier Milei has imposed a cap on the currency to tame soaring inflation and currently it remains overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

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

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for helping to bring price rises in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project in recent months following a shaky result in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact the “will of the people” despite elite opposition.

Farage to date outlined limited plans to paper aside from proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem in flux: wary of being accused of proposing reckless spending, he recently dropped a promise for significant tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result from the study, however, is that even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But 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.