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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 congressional elections in a country accustomed to saving in the US dollar.

“The best time to buy is currently,” states a arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the voting is over. President Javier Milei has imposed a limit on the peso to tame soaring inflation and currently it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing forceful policies to wrestle back command of the economy from traditional elites on behalf of ordinary citizens.

These key characteristics are shared by his political partner to the north, as well as Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from international lenders for helping to control inflation under control. The programme has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

But financial markets began losing confidence in Milei’s radical project lately after a poor performance in local polls and multiple graft allegations. Solely large-scale financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise to make large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray Farage as intending to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her approach of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when confronting real-world challenges (although every populist leader promises distinct solutions).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in nations governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, however, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.