🔗 Share this article

“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation accustomed to holding the greenback.

“The best time to buy is currently,” states one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economic experts across the spectrum expect a depreciation of the national currency after the election concludes. The president has placed a cap on the currency to control triple-digit inflation and currently it remains artificially high and reserves are depleted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

Argentina is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, promising forceful policies to reclaim command of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as the UK politician, 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 – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for contributing to control inflation in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be slain, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project lately following a shaky result in provincial elections and a series of graft allegations. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

Farage has so far outlined limited plans to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately dropped a pledge to make large tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her approach of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and reduced rules, yet also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.