🔗 Share this article

“Exchange, exchange.” Under the scorching heat, scores of money changers are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a nation long used to holding the greenback.

“The best time to buy is currently,” states a arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the election is over. President Javier Milei has imposed a limit on the peso to tame triple-digit inflation and now it is overvalued and foreign reserves are depleted, leaving Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to reclaim command of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to control inflation in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of proposing reckless spending, he recently dropped a pledge for large tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict the populist as intending to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “Reform is funded by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, over the long term, gross domestic product per head is often a tenth less in nations run by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, though, is even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid significant costs.