🔗 Share this article

“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are hawking American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a country long used to holding the US dollar.

“The optimal moment for purchasing is now,” says a arbolito, refusing to provide her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the voting concludes. The president has imposed a limit on the peso to control triple-digit inflation and currently it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, vowing muscular policies to reclaim control of economic management from traditional elites on behalf of the people.

These defining traits are shared by his ally in the United States, and by the UK politician, who presents himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. This plan has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months after a shaky result in local polls and multiple corruption scandals. Solely massive financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans in writing aside from a call for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately abandoned a promise to make large tax reductions. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for tax cuts and deregulation, yet also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there among wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises distinct solutions).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, over more than a century. It found typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, however, is despite their economic costs, populist figures tend to be good at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, the Argentine people have already paid a heavy price.