🔗 Share this article

“Cambio, cambio.” Under the blazing sun, scores of currency traders are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to saving in the US dollar.

“The best time to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency once the election concludes. The president has imposed a limit on the peso to tame soaring price increases and currently it remains artificially high and foreign reserves are depleted, causing the national economy sluggish as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by debt defaults and economic crises and the electorate 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 epitomizes populist leadership: charismatic, unconventional, promising forceful policies to reclaim command of the economy from the establishment on behalf of the people.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to control price rises under control. This plan shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of corruption scandals. Solely massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her approach of boosting public investment.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by affluent backers demanding lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, 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).

A recent paper from a leading journal examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in nations governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.