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

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a limit on the currency to tame soaring price increases and now it remains overvalued and foreign reserves are depleted, leaving the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing muscular measures to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to control inflation in check. The programme shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project in recent months following a poor performance in local polls and multiple corruption scandals. Only massive economic support from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, 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 in writing aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: wary of being accused of proposing reckless spending, he recently abandoned a promise for large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict Farage as intending to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers demanding tax cuts and reduced rules, but also emphasizing the grievances of working people and the decline in manufacturing employment,” he says. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, however, is that even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, the Argentine people are already bearing a heavy price.