🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to holding the US dollar.

“The best time to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso after the voting concludes. The president has imposed a limit on the currency to control soaring inflation and now it is artificially high and reserves are exhausted, leaving the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to reclaim command of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his ally in the United States, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to control inflation under control. This plan has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, regardless of the consequences.

However investors started to doubt in Milei’s radical project in recent months after a shaky result in provincial elections and a series of graft allegations. Only large-scale economic support by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its figurehead, the former prime minister, swept away concerns about economic detail with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies to paper except for proposals for mass deportations, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of facing criticism for planning reckless spending, he recently dropped a pledge for significant tax reductions. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to portray the populist as intending to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he explains. “There is a conflict there between rich backers who want radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, research suggests neither left nor right populists tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal analysed the performance of dozens of populist leaders, over more than a century. The study revealed that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” argue the researchers.

A further interesting result of the research, however, is even with their negative impacts, these leaders tend to be good at retaining office, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.