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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation long used to holding the greenback.

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

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency once the voting is over. President Javier Milei has placed a cap on the peso to tame soaring price increases and currently it remains artificially high and reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has been repeatedly hit by debt defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, promising forceful policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had earned praise from international lenders for helping to bring inflation in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda lately following a shaky result in provincial elections and multiple graft allegations. Only massive financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with confident resolve to enact the “will of the people” in the face of the establishment’s horror.

Farage has so far outlined limited plans to paper except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a promise to make significant tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour aims this stance will allow it to portray the populist as planning to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, research suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often 10% lower in countries run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, these leaders are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.