🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country long used to saving in the greenback.

“The optimal moment to buy is currently,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a depreciation of the Argentine peso after the election is over. The president has imposed a limit on the currency to control soaring price increases and now it remains overvalued and foreign reserves are depleted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been racked by debt defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now the president’s conservative populism.

Milei is a textbook populist: captivating, unconventional, promising muscular policies to wrestle back control of economic management from the establishment on behalf of ordinary citizens.

These key characteristics are also seen in his ally 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 ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for helping to control price rises under control. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project in recent months following a poor performance in local polls and a series of graft allegations. Only large-scale economic support from abroad has averted what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact public demand despite the establishment’s horror.

Farage to date outlined limited plans in writing aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of planning reckless spending, he lately abandoned a promise for significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this position will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of increasing government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of working people and the loss in manufacturing employment,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research indicates neither left nor right populists tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, however, is even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

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