🔗 Share this article

“Exchange, exchange.” Under the blazing sun, scores of money changers are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is now,” says one arbolito, declining to give her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a devaluation of the national currency after the voting is over. The president has placed a limit on the peso to tame triple-digit inflation and currently it is overvalued and reserves are exhausted, leaving the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful measures to reclaim control of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Until recent months, the president’s strategy – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for contributing to bring inflation in check. This plan shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

However investors started to doubt in Milei’s radical project in recent months after a shaky result in provincial elections and multiple graft allegations. Only massive economic support from abroad has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of the establishment’s horror.

Farage to date outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of proposing reckless spending, he recently abandoned a promise for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to depict the populist as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her approach of increasing government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, research suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

A further interesting result of the research, though, is even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, 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 regain sovereignty, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.