🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of money changers are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a country accustomed to holding the greenback.

“The best time to buy is now,” says one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the election concludes. The president has placed a cap on the peso to control triple-digit price increases and now it is overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

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

Milei is a textbook populist: captivating, iconoclastic, promising forceful policies to wrestle back command of economic management from the establishment on behalf of the people.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe budget reductions – had earned praise from international lenders for contributing to control price rises in check. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately following a shaky result in local polls and a series of graft allegations. Solely massive financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns about economic detail with confident resolve to enact public demand despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge to make large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

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

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often a tenth less in nations run by populist rulers compared to similar economies with more mainstream regimes.

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

A further interesting result of the research, however, is even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.