🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to saving in the greenback.

“The optimal moment for purchasing is now,” states one arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the voting is over. President Javier Milei has placed a limit on the currency to tame triple-digit inflation and now it is artificially high and foreign reserves are exhausted, leaving the national economy stagnant as buyers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil 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 rightwing version.

The president is a textbook populist: charismatic, iconoclastic, vowing muscular measures to wrestle back command of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to control price rises in check. This plan has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

But investors started to doubt in Milei’s radical project in recent months after a poor performance in provincial elections and a series of corruption scandals. Only large-scale economic support from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the central bank, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: concerned about being accused of planning reckless spending, he recently abandoned a pledge for large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray the populist as planning to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding lower taxes and deregulation, but also emphasizing the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

Realistically, research suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the paper’s authors.

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

Put simply, it remains uncertain that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, the Argentine people are already bearing significant costs.