🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of currency traders are hawking American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to saving in the US dollar.

“The best time for purchasing is currently,” says a arbolito, refusing to provide her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the national currency once the voting concludes. President Javier Milei has imposed a cap on the peso to tame triple-digit price increases and now it remains overvalued and reserves are depleted, causing Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful policies to reclaim command of economic management from the establishment on behalf of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as the UK politician, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for contributing to bring price rises under control. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months after a shaky result in local polls and multiple graft allegations. Solely large-scale economic support by the US has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” 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 wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning reckless spending, he recently abandoned a promise to make significant tax cuts. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will allow it to depict Farage as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell says there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

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

A recent paper from a leading journal examined the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist rulers than in comparable countries with more mainstream regimes.

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

A further interesting result of the research, however, is that even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens have already paid significant costs.