🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of money changers are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a nation long used to saving in the greenback.

“The best time for purchasing is now,” states a arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the peso to tame soaring inflation and now it is overvalued and reserves are exhausted, leaving Argentina’s economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been hit by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: captivating, unconventional, promising forceful measures to wrestle back control of the economy from the establishment on behalf of ordinary citizens.

These defining traits are also seen in his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to bring inflation under control. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a dragon to be slain, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months following a shaky result in local polls and a series of graft allegations. Only large-scale financial intervention from abroad has averted what looked set to become a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans to paper aside from proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: concerned about facing criticism for planning reckless spending, he lately abandoned a promise to make large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this position will enable it to depict Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of boosting government spending.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe often perform poorly when confronting real-world challenges (though of course every populist leader promises something unique).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head is often a tenth less in countries run by populist rulers than in comparable countries under conventional leadership.

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

A further interesting result from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people have already paid a heavy price.