🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering US dollars on 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 long used to saving in the greenback.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso once the voting is over. President Javier Milei has placed a cap on the currency to control soaring inflation and now it is overvalued and reserves are depleted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising forceful policies to reclaim 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 Nigel Farage, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from international lenders for helping to control inflation under control. This plan 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 investors began losing confidence in the government’s agenda lately after a poor performance in local polls and a series of corruption scandals. Solely massive economic support from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage has so far outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this position will allow it to portray the populist as planning to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, over more than a century. The study revealed that on average, after 15 years, gross domestic product per head tends to be a tenth less in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” contend the researchers.

A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at retaining office, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.