“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation long used to saving in the greenback.
“The optimal moment for purchasing is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”
Similar to her, economic experts from all backgrounds expect a depreciation of the Argentine peso once the voting is over. The president has imposed a cap on the currency to control soaring inflation and now it remains artificially high and reserves are exhausted, causing the national economy sluggish as buyers opt for low-cost foreign goods.
The nation represents a unique situation. The country has frequently been hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s conservative populism.
The president epitomizes populist leadership: charismatic, iconoclastic, vowing muscular measures to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.
These defining traits are shared by his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.
Up until lately, Milei’s approach – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to control inflation in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.
But financial markets began losing confidence in Milei’s radical project lately following a poor performance in local polls and multiple corruption scandals. Solely massive financial intervention from abroad has prevented what looked set to become a major currency crisis.
The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.
The Reform leader has so far committed few policies in writing except for a call for large-scale removals, that he later seemed to adjust on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.
His fiscal plans appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.
Labour hopes this position will enable it to portray the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of boosting public investment.
An economics professor says there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension here among rich backers seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”
Realistically, research indicates neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises something unique).
Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be a tenth less in nations run by populist rulers than in similar economies with more mainstream regimes.
“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.
A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.
Put simply, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.
But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.
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