🔗 Share this article

“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a country accustomed to holding the greenback.

“The best time to buy is currently,” says a arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the election is over. The president has placed a cap on the peso to tame soaring price increases and currently it is overvalued and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man even though he is 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 bring price rises in check. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of corruption scandals. Solely massive financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for a call for large-scale removals, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with distrust toward traditional institutions 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 pledge for large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour hopes this position will allow it to portray Farage as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding lower taxes and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There is a conflict here among rich backers who want radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when confronting real-world challenges (though of course every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, over more than a century. It found typically, over the long term, gross domestic product per head tends to be a tenth less in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average 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. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.