“Exchange, exchange.” Under the scorching heat, scores of money changers are selling American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a nation long used to saving in the US dollar.
“The optimal moment for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”
Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the voting concludes. The president has placed a limit on the currency to control soaring price increases and now it remains overvalued and reserves are depleted, causing the national economy sluggish as consumers opt for cheap imports.
Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and currently Milei’s rightwing version.
Milei is a textbook populist: captivating, unconventional, vowing forceful policies to wrestle back control of the economy from traditional elites on behalf of ordinary citizens.
These key characteristics are shared by his ally in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.
Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control price rises in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, regardless of the consequences.
But financial markets began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and multiple corruption scandals. Only massive economic support from abroad has prevented what looked set to become a full-blown monetary collapse.
The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.
The Reform leader has so far committed few policies to paper except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.
His fiscal plans appear to be in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.
The opposition aims this position will enable it to depict the populist as planning to reintroduce austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing public investment.
An economics professor says there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people calling for lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”
In truth, research indicates neither left nor right populists often perform poorly when faced with real-world challenges (although every populist leader claims to offer distinct solutions).
A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries run by populist rulers compared to similar economies with more mainstream regimes.
“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the researchers.
Another intriguing finding of the research, though, is even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.
In other words, it is not clear that even when their policies fail, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.
But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.
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