🔗 Share this article

“Dollars, dollars.” Under the scorching heat, dozens of currency traders are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a country long used to saving in the US dollar.

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

Similar to her, economic experts from all backgrounds anticipate a depreciation of the national currency once the election concludes. President Javier Milei has placed a limit on the currency to control soaring price increases and now it remains overvalued and foreign reserves are depleted, leaving Argentina’s economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, promising forceful measures to reclaim control of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his political partner in the United States, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from international lenders for helping to bring inflation in check. This plan shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

However investors started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention by the US has prevented what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror.

Farage to date committed few policies in writing aside from a call for mass deportations, that he later appeared to revise on the hoof. He wants to curb the central bank, possibly replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be in flux: concerned about being accused of planning reckless spending, he recently dropped a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this stance will allow it to portray Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her approach of boosting government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of working people 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 restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, over more than a century. It found that on average, over the long term, GDP per capita is often a tenth less in countries run by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.