🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of money changers are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is currently,” says a arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the voting concludes. The president has placed a cap on the currency to control soaring inflation and currently it remains artificially high and reserves are depleted, causing Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful policies to wrestle back control of the economy from the establishment on behalf of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in provincial elections and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

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

Farage has so far committed few policies to paper aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise to make significant tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as intending to reintroduce austerity – a point the chancellor has made repeatedly, 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 very wealthy people calling for tax cuts and reduced rules, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he explains. “There’s a tension there among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence suggests populists of any stripe tend to fare well when confronting real-world challenges (although every populist leader claims to offer something unique).

Recent research from a leading journal analysed the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, over the long term, GDP per capita is often 10% lower in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, 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 despite their economic costs, these leaders are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing a heavy price.