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“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country long used to saving in the greenback.

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

Like her, economists across the spectrum expect a depreciation of the Argentine peso once the election concludes. The president has placed a cap on the peso to control soaring price increases and currently it remains overvalued and foreign reserves are depleted, causing the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. 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 influential Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, promising muscular policies to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to control inflation under control. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster 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 local polls and multiple graft allegations. Solely massive financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for 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, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge to make significant tax reductions. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict Farage as planning to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers calling for lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often a tenth less in countries governed by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

Another intriguing finding from the study, though, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.