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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a country accustomed to saving in the greenback.

“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum expect a depreciation of the national currency once the election concludes. President Javier Milei has placed a limit on the peso to tame soaring inflation and now it remains overvalued and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful measures to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had earned praise from international lenders for contributing to control price rises under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately after a shaky result in provincial elections and multiple graft allegations. Only large-scale economic support by the US has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans to paper except for a call for large-scale removals, that he later appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: concerned about being accused of proposing reckless spending, he lately abandoned a promise to make significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour aims this position will enable it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers calling for tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer distinct solutions).

Recent research in the American Economic Review analysed 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 rulers compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically 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 tend to be good at holding on to power, lasting on average a considerable time, versus four for mainstream politicians.

In other words, 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 mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.