🔗 Share this article

“Cambio, cambio.” Under the blazing sun, scores of money changers are hawking American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is now,” states one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the voting is over. The president has placed a cap on the currency to control triple-digit inflation and now it is artificially high and foreign reserves are depleted, leaving the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by debt defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, promising muscular measures to wrestle back control of the economy from traditional elites for the benefit of the people.

These key characteristics are also seen in his ally in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe budget reductions – had earned praise from international lenders for contributing to control price rises in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately after a poor performance in provincial elections and multiple corruption scandals. Solely large-scale financial intervention from abroad has averted what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

Farage has so far committed few policies to paper aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there among rich backers who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens have already paid a heavy price.