🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of currency traders are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country long used to holding the greenback.

“The optimal moment to buy is now,” states a arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economic experts across the spectrum expect a devaluation of the Argentine peso once the election is over. President Javier Milei has imposed a limit on the currency to control triple-digit price increases and now it is artificially high and foreign reserves are depleted, causing the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising forceful measures to wrestle back command of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his political partner to the north, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from the IMF for helping to bring price rises under control. The programme shares similarities with that of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project lately following a shaky result in local polls and a series of graft allegations. Only massive economic support from abroad has averted what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to enact the “will of the people” despite elite opposition.

Farage to date committed few policies 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, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately dropped a promise to make large tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will enable it to depict Farage as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her approach of boosting government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when confronting practical difficulties (although each charismatic individual promises distinct solutions).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, GDP per capita tends to be 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” contend the paper’s authors.

A further interesting result from the study, however, is that even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.