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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country accustomed to saving in the greenback.

“The best time for purchasing is currently,” says one arbolito, declining to give her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the peso to tame soaring price increases and now it remains overvalued and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, such as the influential Peronism, and currently Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his ally to the north, as well as the UK politician, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to bring inflation in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months following a shaky result in local polls and a series of graft allegations. Only large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite elite opposition.

Farage has so far outlined limited plans to paper except for proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be in flux: concerned about facing criticism for planning reckless spending, he recently abandoned a pledge for large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour aims this stance will allow it to portray the populist as intending to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, but also emphasizing the complaints of working people and the loss of industrial jobs,” he explains. “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

Realistically, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (although each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist rulers than in comparable countries with more mainstream regimes.

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

A further interesting result of the research, however, is despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens have already paid significant costs.