🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, dozens of money changers 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 country long used to holding the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds expect a devaluation of the national currency after the election concludes. President Javier Milei has placed a limit on the currency to control triple-digit inflation and currently it is overvalued and foreign reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been hit by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to reclaim command of economic management from the establishment on behalf of the people.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to control inflation in check. This plan shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and multiple graft allegations. Solely massive financial intervention from abroad has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, dismissed doubts about economic detail with confident resolve to enact public demand despite the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for mass deportations, that he later seemed to adjust on the hoof. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a promise for large tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

Labour hopes this position will allow it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform is funded by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters who want radical free-market policies, and this story of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, research indicates populists of any stripe often perform poorly when confronting real-world challenges (although each charismatic individual promises something unique).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often a tenth less in nations run by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

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

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid significant costs.