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“Cambio, cambio.” Beneath the scorching heat, dozens of money changers are hawking American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation long used to saving in the US dollar.

“The best time to buy is currently,” says a arbolito, declining to give her identity. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the voting is over. President Javier Milei has placed a limit on the currency to control triple-digit inflation and now it remains overvalued and reserves are exhausted, leaving the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to reclaim command of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring inflation under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

But financial markets started to doubt in Milei’s radical project lately after a shaky result in local polls and a series of graft allegations. Solely massive financial intervention from abroad has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for planning reckless spending, he recently abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by very wealthy people calling for lower taxes and deregulation, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper 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, GDP per capita tends to be 10% lower in countries run by populist rulers than in comparable countries under conventional leadership.

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

A further interesting result of the research, though, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.