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“Cambio, cambio.” Under the blazing sun, dozens of currency traders are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is currently,” says a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economists from all backgrounds expect a devaluation of the national currency once the voting is over. President Javier Milei has placed a limit on the peso to tame soaring price increases and currently it is artificially high and foreign reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to bring price rises under control. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.

But investors started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple corruption scandals. Only large-scale financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader to date committed few policies in writing except for a call for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he recently dropped a promise to make large tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict Farage as intending to reintroduce austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people demanding lower taxes and deregulation, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here between rich backers seeking radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.