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“Exchange, exchange.” Under the scorching heat, dozens of money changers are offering US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation long used to saving in the greenback.

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

Similar to her, economic experts across the spectrum expect a devaluation of the national currency after the election concludes. The president has placed a limit on the currency to tame triple-digit price increases and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, vowing muscular measures to reclaim command of the economy from the establishment for the benefit of the people.

These defining traits are also seen in 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 – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for contributing to bring price rises in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in local polls and multiple graft allegations. Solely large-scale financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

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

The Reform leader to date committed few policies in writing aside from a call for mass deportations, that he later appeared to revise on the hoof. He wants to rein in the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of being accused of planning reckless spending, he lately abandoned a promise to make large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims this stance will allow it to depict the populist as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for lower taxes and deregulation, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often 10% lower in countries run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, versus four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.