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“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are hawking American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a country long used to saving in the greenback.

“The best time to buy is currently,” states one arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the national currency after the voting is over. The president has imposed a cap on the peso to tame triple-digit price increases and now it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and currently Milei’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing forceful policies to reclaim command of the economy from the establishment for the benefit of the people.

These key characteristics are also seen in his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking people’s champion despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for contributing to control price rises under control. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be slain, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of corruption scandals. Only massive financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to implement public demand despite the establishment’s horror.

Farage to date outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise spontaneously. He aims to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to depict the populist as planning to bring back austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by very wealthy people calling for tax cuts and reduced rules, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

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

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations run by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” argue the researchers.

A further interesting result of the research, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, the Argentine people have already paid significant costs.