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“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to holding the greenback.

“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the currency to control soaring inflation and currently it remains artificially high and foreign reserves are exhausted, causing the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: captivating, unconventional, promising forceful measures to wrestle back control of the economy from traditional elites on behalf of ordinary citizens.

These key characteristics are shared by his political partner in the United States, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to bring price rises under control. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months following a shaky result in provincial elections and a series of corruption scandals. Solely massive economic support by the US has averted what looked set to become a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to implement the “will of the people” despite elite opposition.

Farage to date outlined limited plans to paper aside from a call for mass deportations, which he subsequently appeared to revise spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for planning reckless spending, he lately dropped a promise to make large tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts 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 there among wealthy supporters seeking radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

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

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist rulers than in similar economies with more mainstream regimes.

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

A further interesting result from the study, though, is that despite their economic costs, these leaders tend to be good at retaining office, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

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 extends past everyday financial matters.

But back in Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.