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“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a country accustomed to saving in the greenback.

“The best time for purchasing is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economic experts from all backgrounds expect a devaluation of the national currency once the election is over. President Javier Milei has placed a limit on the peso to control triple-digit price increases and currently it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular measures to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for helping to control inflation in check. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

However investors began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of graft allegations. Only massive financial intervention from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about facing criticism for planning reckless spending, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as planning to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for tax cuts and deregulation, but also talking a lot about the grievances of working people and the loss of industrial jobs,” he explains. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the researchers.

A further interesting result from the study, though, is even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid significant costs.