🔗 Share this article

“Cambio, cambio.” Under the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The best time for purchasing is now,” states one arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the voting concludes. The president has imposed a cap on the currency to control triple-digit price increases and now it is overvalued and reserves are exhausted, leaving the national economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, promising forceful measures to wrestle back command of the economy from the establishment on behalf of ordinary citizens.

These defining traits are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and severe public spending cuts – had won plaudits from international lenders for helping to control price rises in check. The programme shares similarities with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, possibly replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about facing criticism for planning reckless spending, he lately dropped a promise for large tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there among rich backers who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, over the long term, gross domestic product per head is often 10% lower in countries governed by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

A further interesting result of the research, though, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.