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

“The best time for purchasing is currently,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a cap on the peso to tame triple-digit price increases and currently it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been hit by debt defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising muscular measures to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from the IMF for helping to bring price rises in check. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, no matter the cost.

However investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and multiple corruption scandals. Solely massive financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans to paper except for proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a promise to make large tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer something unique).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is that even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for a considerable time, versus shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

Yet back in Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.