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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a nation long used to saving in the greenback.

“The best time for purchasing is currently,” says a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the Argentine peso once the election concludes. The president has placed a limit on the currency to control triple-digit inflation and now it is artificially high and reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises under control. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

However financial markets started to doubt in the government’s agenda lately following a poor performance in local polls and multiple corruption scandals. Solely massive economic support from abroad has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed concerns about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader to date committed few policies in writing aside from proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to rein in the Bank of England, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of planning reckless spending, he lately abandoned a promise for large tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this position will allow it to portray the populist as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

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

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in nations governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result of the research, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, compared with four for mainstream politicians.

In other words, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing significant costs.