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“Dollars, dollars.” Beneath the scorching heat, scores of money changers are selling 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 midterm elections in a nation accustomed to saving in the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the national currency once the election concludes. President Javier Milei has placed a cap on the peso to tame soaring inflation and currently it remains overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing muscular measures to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally in the United States, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had earned praise from international lenders for helping to bring inflation in check. This plan has something in common with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months following a shaky result in local polls and a series of graft allegations. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, possibly replacing its head, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he lately dropped a pledge to make significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this position will allow it to depict the populist as intending to bring back austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and reduced rules, yet also emphasizing the complaints of working people and the decline of industrial jobs,” he explains. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

Realistically, research indicates neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the researchers.

A further interesting result of the research, however, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for eight years, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing a heavy price.