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“Cambio, cambio.” Under the blazing sun, scores of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the peso to tame triple-digit price increases and now it remains overvalued and reserves are exhausted, causing the national economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, and by the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to bring price rises under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a poor performance in local polls and a series of corruption scandals. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for mass deportations, that he later appeared to revise on the hoof. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust 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 lately abandoned a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by very wealthy people demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here among wealthy supporters who want radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” contend the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. 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 kept on life support through foreign assistance, the Argentine people are already bearing significant costs.