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“Cambio, cambio.” Under the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country accustomed to holding the greenback.

“The best time for purchasing is currently,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency after the election concludes. President Javier Milei has placed a limit on the currency to control soaring price increases and now it is overvalued and reserves are depleted, causing Argentina’s economy stagnant as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by debt defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising forceful policies to wrestle back control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe public spending cuts – had won plaudits from international lenders for contributing to bring price rises under control. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

However investors started to doubt in Milei’s radical project lately after a shaky result in local polls and a series of graft allegations. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve to enact the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies in writing except for a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of facing criticism for planning reckless spending, he recently dropped a pledge to make significant tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to depict Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader promises something unique).

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, GDP per capita tends to be 10% lower in nations run by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

A further interesting result of the research, however, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.