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“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds expect a depreciation of the Argentine peso after the voting concludes. The president has placed a cap on the peso to tame soaring price increases and currently it remains overvalued and reserves are depleted, causing the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and now Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, vowing forceful policies to reclaim control of economic management from traditional elites for the benefit of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to control inflation in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in local polls and multiple corruption scandals. Only massive economic support by the US has averted what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He aims to curb the central bank, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge to make significant tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray the populist as intending to reintroduce austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding tax cuts and deregulation, but also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual claims to offer 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, after 15 years, gross domestic product per head tends to be a tenth less in nations governed by populist rulers compared to similar economies under conventional leadership.

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

Another intriguing finding from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people have already paid a heavy price.