🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of money changers are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation long used to holding the US dollar.

“The best time to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting concludes. President Javier Milei has imposed a cap on the currency to tame triple-digit price increases and now it is artificially high and reserves are exhausted, leaving the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina 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 influential Peronism, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, promising forceful measures to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation in check. This plan has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be slain, regardless of the consequences.

However financial markets started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple graft allegations. Only large-scale economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact public demand despite the establishment’s horror.

The Reform leader to date committed few policies to paper except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a pledge for significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as intending to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there between wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper from a leading journal examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result of the research, however, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, the Argentine people are already bearing a heavy price.