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“Cambio, cambio.” Under the blazing sun, dozens of currency traders are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a nation long used to holding the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the voting is over. President Javier Milei has imposed a cap on the peso to control triple-digit inflation and currently it remains overvalued and reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has frequently been hit by debt defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, in the form of the powerful Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular measures to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to control inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project lately after a poor performance in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans to paper aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem in flux: concerned about being accused of planning reckless spending, he recently abandoned a pledge for large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to depict Farage as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, however, is that even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens have already paid a heavy price.