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“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a country long used to holding the greenback.

“The optimal moment for purchasing is now,” says a arbolito, declining to give her identity. “[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 voting concludes. The president has placed a cap on the peso to tame soaring price increases and now it is overvalued and foreign reserves are depleted, causing the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to reclaim control of economic management from the establishment on behalf of ordinary citizens.

These key characteristics are also seen in his political partner to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, regardless of the consequences.

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

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite elite opposition.

Farage to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a promise to make large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of boosting public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (though of course every populist leader promises something unique).

A recent paper from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often 10% lower in nations governed by populist leaders than in comparable countries with more mainstream regimes.

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

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.