“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation accustomed to saving in the greenback.
“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”
Similar to her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the voting is over. The president has placed a limit on the currency to control triple-digit price increases and now it remains overvalued and reserves are depleted, causing the national economy stagnant as buyers turn to low-cost foreign goods.
The nation represents a unique situation. The country has frequently been hit by debt defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s conservative populism.
Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to wrestle back 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 Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.
Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to bring price rises under control. This plan shares similarities with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be defeated, regardless of the consequences.
However financial markets began losing confidence in Milei’s radical project in recent months following a poor performance in local polls and a series of graft allegations. Only massive economic support from abroad has prevented what seemed destined to be a full-blown currency crisis.
The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement the “will of the people” in the face of the establishment’s horror.
The Reform leader to date outlined limited plans in writing aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.
His fiscal plans seem unsettled: concerned about being accused of planning reckless spending, he lately dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.
The opposition hopes this position will allow it to portray the populist as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.
An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people calling for lower taxes and deregulation, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension there between wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”
In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course every populist leader claims to offer something unique).
A recent paper from a leading journal examined the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries run by populist leaders than in comparable countries under conventional leadership.
“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.
A further interesting result of the research, however, is that despite their economic costs, these leaders are often effective at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.
In other words, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.
Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.
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