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“Cambio, cambio.” Under the scorching heat, scores of currency traders are offering US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the US dollar.

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

Like her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the currency to tame soaring inflation and currently it remains overvalued and reserves are depleted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has frequently been hit by debt defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, promising forceful policies to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, and by Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

But investors started to doubt in the government’s agenda in recent months after a shaky result in local polls and a series of corruption scandals. Only massive economic support by the US has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, dismissed concerns about economic detail with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies to paper except for proposals for mass deportations, that he later appeared to revise on the hoof. He wants to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be in flux: concerned about being accused of proposing reckless spending, he recently dropped a promise for significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this position will enable it to portray Farage as intending to bring back fiscal tightening – a point 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, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting practical difficulties (although each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, GDP per capita is often 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the researchers.

Another intriguing finding of the research, however, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists 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, whether Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.