🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” says a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the national currency once the voting concludes. President Javier Milei has imposed a cap on the currency to tame soaring inflation and currently it remains artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the powerful Peronism, and currently the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising muscular measures to reclaim control of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to bring inflation under control. This plan has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda in recent months following a shaky result in local polls and multiple corruption scandals. Solely massive financial intervention from abroad has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

Farage has so far outlined limited plans to paper except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise to make significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers calling for tax cuts and reduced rules, yet also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests populists of any stripe tend to fare well when confronting practical difficulties (although every populist leader promises something unique).

Recent research from a leading journal analysed the performance of dozens of populist leaders, over more than a century. The study revealed typically, after 15 years, GDP per capita is often 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

A further interesting result of the research, however, is that despite their economic costs, populist figures tend to be good at holding on to power, lasting on average eight years, versus four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.