🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a country long used to holding the US dollar.

“The optimal moment for purchasing is currently,” says 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 across the spectrum expect a depreciation of the national currency after the election concludes. The president has imposed a cap on the currency to control soaring inflation and now it remains overvalued and reserves are exhausted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and now the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising forceful policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to control price rises in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months following a shaky result in local polls and a series of corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact public demand despite elite opposition.

The Reform leader to date committed few policies in writing 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 replacing its head, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise for significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “The party is funded by very wealthy people calling for lower taxes and deregulation, but also emphasizing the grievances of working people and the loss of industrial jobs,” he says. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests populists of any stripe tend to fare well when confronting practical difficulties (though of course every populist leader promises something unique).

Recent research from a leading journal examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist rulers than in similar economies with more mainstream regimes.

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

A further interesting result from the study, however, is even with their negative impacts, populist figures are often effective at retaining office, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

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