🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of money changers are hawking American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a country accustomed to holding the US dollar.

“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum expect a depreciation of the national currency after the voting is over. President Javier Milei has imposed a cap on the currency to control triple-digit price increases and now it is overvalued and reserves are exhausted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising muscular policies to wrestle back command of economic management from the establishment on behalf of the people.

These key characteristics are also seen in his political partner to the north, and by the UK politician, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for helping to bring price rises under control. The programme shares similarities with that of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately following a poor performance in provincial elections and a series of graft allegations. Only large-scale economic support by the US has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers calling for lower taxes and reduced rules, but also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests neither left nor right populists tend to fare well when faced with real-world challenges (although every populist leader promises distinct solutions).

A recent paper from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.