🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of money changers are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the greenback.

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

Similar to her, economists across the spectrum anticipate a depreciation of the national currency once the voting concludes. President Javier Milei has imposed a cap on the currency to tame triple-digit price increases and now it remains artificially high and foreign reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising muscular measures to wrestle back command of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are shared by his political partner in the United States, as well as the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to control inflation in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be slain, regardless of the consequences.

However financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple corruption scandals. Only large-scale economic support from abroad has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with a bullish determination to enact public demand in the face of elite opposition.

Farage to date committed few policies to paper except for a call for large-scale removals, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His tax and spending policies seem unsettled: concerned about facing criticism for planning reckless spending, he lately dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

Labour aims this stance will allow it to depict the populist as planning to reintroduce fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, these leaders are often effective at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.