🔗 Share this article

“Cambio, cambio.” Beneath the scorching heat, dozens of money changers are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation long used to holding the greenback.

“The optimal moment for purchasing is currently,” states a arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the election concludes. President Javier Milei has imposed a cap on the currency to tame soaring price increases and currently it remains overvalued and foreign reserves are exhausted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing muscular policies to wrestle back command of the economy from traditional elites for the benefit of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months following a poor performance in local polls and multiple graft allegations. Only massive economic support by the US has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, swept away concerns about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of facing criticism for planning reckless spending, he recently abandoned a promise for large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to depict the populist as intending to bring back austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here between rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader promises something unique).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. It found typically, over the long term, gross domestic product per head is often 10% lower in countries run by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the researchers.

A further interesting result from the study, however, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people have already paid significant costs.