🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of currency traders are selling US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to saving in the US dollar.

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

Like her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the currency to control soaring price increases and now it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. Argentina has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, such as the influential Peronism, and now the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for helping to control inflation under control. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

However investors started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple corruption scandals. Only massive financial intervention by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

Farage to date committed few policies in writing except for proposals for large-scale removals, that he later seemed to adjust spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he lately abandoned a promise to make large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as planning to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there between rich backers who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, over more than a century. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist leaders than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together with populist rule,” argue the researchers.

Another intriguing finding of the research, however, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.