🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of money changers are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment to buy is currently,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum expect a depreciation of the national currency after the voting concludes. President Javier Milei has imposed a cap on the peso to control soaring price increases and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the powerful Peronism, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing forceful measures to reclaim control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his political partner in the United States, as well as Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to bring price rises in check. This plan shares similarities with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project lately after a shaky result in provincial elections and multiple graft allegations. Solely large-scale financial intervention by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact public demand despite elite opposition.

Farage to date committed few policies in writing aside from a call for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: concerned about facing criticism for proposing reckless spending, he lately dropped a promise to make large tax reductions. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to portray Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of boosting government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there between rich backers who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe tend to fare well when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions).

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 10% lower in countries run by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.