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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country accustomed to holding the greenback.

“The best time for purchasing is currently,” states a arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the voting concludes. President Javier Milei has imposed a cap on the peso to tame soaring price increases and now it remains artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the influential Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to wrestle back control of economic management from the establishment on behalf of the people.

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from international lenders for helping to bring inflation under control. This plan shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately after a shaky result in provincial elections and multiple graft allegations. Solely massive economic support by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, swept away doubts about economic detail with confident resolve to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies to paper aside from a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to curb the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment 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 lately abandoned a promise for large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader promises distinct solutions).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head tends to be 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, however, is that despite their economic costs, populist figures tend to be good at retaining office, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing significant costs.