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“Exchange, exchange.” Under the blazing sun, scores of money changers are hawking American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to holding the US dollar.

“The best time to buy is now,” says one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a devaluation of the Argentine peso after the election concludes. The president has placed a limit on the peso to control triple-digit price increases and now it remains artificially high and foreign reserves are exhausted, causing the national economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the powerful Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to wrestle back control of economic management from the establishment on behalf of ordinary citizens.

These defining traits 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 despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to control price rises in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

However investors began losing confidence in the government’s agenda lately following a shaky result in local polls and a series of graft allegations. Only large-scale financial intervention from abroad has prevented what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies to paper except for proposals for large-scale removals, that he later seemed to adjust spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise for large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this position will allow it to portray Farage as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment.

Jo Michell notes there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, research indicates populists of any stripe tend to fare well when faced with real-world challenges (although 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. The study revealed that on average, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist rulers compared to comparable countries with more mainstream regimes.

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

Another intriguing finding of the research, though, is that despite their economic costs, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders 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, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.