“Cambio, cambio.” Under the blazing sun, dozens of currency traders are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a country long used to holding the greenback.
“The best time for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”
Similar to her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the election concludes. President Javier Milei has placed a limit on the currency to tame triple-digit price increases and currently it remains overvalued and foreign reserves are exhausted, causing the national economy stagnant as consumers turn to low-cost foreign goods.
Argentina is a very special case. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.
The president epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to wrestle back control of economic management from the establishment on behalf of the people.
These defining traits are shared by his ally to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is 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 international lenders for helping to bring price rises in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.
But investors began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Only large-scale economic support by the US has prevented what seemed destined to be a major currency crisis.
The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror.
The Reform leader to date committed few policies to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.
His tax and spending policies seem in flux: concerned about being accused of proposing reckless spending, he lately dropped a pledge for large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.
The opposition aims this position will enable it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing government spending.
An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by very wealthy people demanding lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”
Realistically, the evidence indicates neither left nor right populists tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer something unique).
Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist rulers compared to similar economies with more mainstream regimes.
“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.
A further interesting result of the research, though, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.
Put simply, it is not clear whether even if their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.
Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.
Astrophysicist and space technology consultant with 15 years of experience in lunar mission planning and research.
