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“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars on Florida Street, a lively 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 holding the greenback.

“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso once the election is over. President Javier Milei has placed a cap on the peso to tame triple-digit price increases and now it is overvalued and reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, vowing forceful measures to reclaim control of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to bring price rises under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However investors began losing confidence in Milei’s radical project lately after a poor performance in local polls and a series of graft allegations. Solely massive economic support from abroad has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

Farage has so far committed few policies in writing except for proposals for mass deportations, that he later seemed to adjust spontaneously. He wants to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he lately dropped a pledge to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict the populist as intending to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her approach of increasing government spending.

Jo Michell says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict here among wealthy supporters seeking radical free-market policies, and this story of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates populists of any stripe often perform poorly when confronting real-world challenges (although every populist leader claims to offer something unique).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist leaders compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the researchers.

Another intriguing finding from the study, however, is that despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for a considerable time, versus four for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.