🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a nation long used to holding the greenback.

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

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso after the voting is over. President Javier Milei has imposed a limit on the peso to control soaring price increases and now it is artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and currently the president’s conservative populism.

The president is a textbook populist: charismatic, unconventional, promising muscular measures to wrestle back control of economic management from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and severe public spending cuts – had won plaudits from international lenders for contributing to bring price rises in check. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a poor performance in provincial elections and multiple corruption scandals. Solely 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 some of the same logic, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies in writing aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: concerned about being accused of planning reckless spending, he recently dropped a promise to make significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition aims this position will allow it to depict the populist as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, but also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, GDP per capita is often 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.