🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country long used to saving in the greenback.

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

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency once the election concludes. President Javier Milei has placed a limit on the peso to control soaring inflation and currently it remains artificially high and foreign reserves are exhausted, leaving the national economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, such as the influential Peronism, and currently the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing forceful measures to reclaim control of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to control inflation under control. This plan has something in common 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 the government’s agenda in recent months after a shaky result in local polls and a series of corruption scandals. Only large-scale economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing except for a call for mass deportations, that he later seemed to adjust on the hoof. He aims to rein in the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise for significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict Farage as planning to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the grievances of working people and the loss in manufacturing employment,” he says. “There is a conflict there between wealthy supporters seeking radical free-market policies, and this story of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, 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 something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 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,” argue the paper’s authors.

Another intriguing finding of the research, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.