🔗 Share this article

“Dollars, dollars.” Beneath the scorching heat, scores of money changers are selling US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the greenback.

“The optimal moment to buy is currently,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the voting concludes. The president has imposed a limit on the peso to tame soaring price increases and currently it is artificially high and foreign reserves are exhausted, causing the national economy stagnant as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful measures to reclaim control of the economy from traditional elites for the benefit of the people.

These defining traits are also seen in his ally to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to bring inflation under control. This plan shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a dragon to be slain, regardless of the consequences.

But investors began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and multiple corruption scandals. Solely massive economic support from abroad has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts 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 except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to depict the populist as intending to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension here between rich backers seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, research indicates populists of any stripe often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. The study revealed that on average, after 15 years, GDP per capita tends to be 10% lower in countries run by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” contend the researchers.

A further interesting result from the study, though, is that even with their negative impacts, populist figures are often effective at retaining office, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.