🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation long used to saving in the greenback.

“The optimal moment to buy is currently,” states one arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the election concludes. President Javier Milei has imposed a limit on the currency to control triple-digit inflation and currently it is artificially high and reserves are depleted, leaving the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and now the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, promising forceful measures to reclaim control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and severe public spending cuts – had earned praise from the IMF for helping to bring price rises in check. The programme has something in common with that of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in the government’s agenda lately following a shaky result in local polls and multiple corruption scandals. Only massive economic support from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage to date committed few policies to paper aside from proposals for mass deportations, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise for large tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this stance will enable it to depict the populist as intending to bring back fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita is often a tenth less in nations governed by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” argue the researchers.

A further interesting result of the research, however, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.