🔗 Share this article

“Exchange, exchange.” Under the blazing sun, scores of currency traders are selling American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a country long used to holding the US dollar.

“The best time for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the election concludes. The president has placed a cap on the currency to tame soaring inflation and currently it remains overvalued and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly hit by debt defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to wrestle back control of economic management from traditional elites on behalf of the people.

These key characteristics are also seen in his ally in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had earned praise from the IMF for helping to bring price rises in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

However investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple graft allegations. Only massive economic support by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He aims 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 seem in flux: wary of facing criticism for proposing reckless spending, he lately abandoned a pledge to make significant tax cuts. His second-in-command, 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 reintroduce austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding tax cuts and deregulation, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, over more than a century. It found that on average, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for 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 at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid a heavy price.