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“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a country accustomed to holding the greenback.

“The best time to buy is now,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a cap on the currency to tame soaring price increases and now it remains artificially high and reserves are depleted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, promising muscular measures to reclaim control of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to bring inflation under control. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be slain, no matter the cost.

However investors started to doubt in Milei’s radical project in recent months after a poor performance in local polls and a series of corruption scandals. Only large-scale economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper except for a call for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise for significant tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will allow it to depict the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, contrasting it with her approach of increasing government spending.

Jo Michell says there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he explains. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often a tenth less in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid significant costs.