🔗 Share this article

“Cambio, cambio.” Beneath the blazing sun, dozens of money changers are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting concludes. The president has placed a limit on the currency to tame soaring inflation and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, such as the powerful Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, promising forceful policies to reclaim control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for helping to bring 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 dragon to be slain, no matter the cost.

But investors started to doubt in the government’s agenda lately following a poor performance in local polls and multiple graft allegations. Solely large-scale economic support from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage to date outlined limited plans to paper aside from a call for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be in flux: concerned about facing criticism for proposing reckless spending, he recently dropped a promise for significant tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict the populist as intending to bring back austerity – a point the chancellor has made repeatedly, contrasting it with her approach of increasing government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found typically, over the long term, GDP per capita tends to be 10% lower in countries run by populist rulers compared to similar economies with more mainstream regimes.

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

A further interesting result from the study, however, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.