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“Exchange, exchange.” Under the scorching heat, dozens of money changers are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a country long used to saving in the US dollar.

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

Similar to her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the voting is over. President Javier Milei has placed a cap on the currency to control soaring price increases and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s rightwing version.

The president is a textbook populist: charismatic, unconventional, promising muscular measures to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to bring price rises under control. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a dragon to be defeated, no matter the cost.

However investors started to doubt in Milei’s radical project in recent months after a poor performance in provincial elections and a series of graft allegations. Solely large-scale financial intervention by the US has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for planning reckless spending, he lately dropped a promise to make significant tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to depict Farage as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor says there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers demanding tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (although each charismatic individual claims to offer something unique).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in nations run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.