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“Cambio, cambio.” Beneath the blazing sun, scores of currency traders are selling US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has imposed a cap on the currency to control triple-digit inflation and currently it remains artificially high and foreign reserves are exhausted, leaving the national economy sluggish as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: captivating, unconventional, vowing muscular policies to wrestle back control of the economy from the establishment on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to bring price rises under control. The programme has something in common with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a poor performance in provincial elections and a series of corruption scandals. Only large-scale financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage has so far committed few policies in writing aside from proposals for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a promise for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict the populist as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

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

Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be 10% lower in countries run by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, however, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, compared with four for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.