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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation long used to holding the US dollar.

“The best time to buy is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts across the spectrum expect a devaluation of the national currency once the voting concludes. President Javier Milei has imposed a limit on the peso to control triple-digit inflation and now it remains overvalued and reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by debt defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronism, and now Milei’s conservative populism.

The president is a textbook populist: charismatic, iconoclastic, vowing forceful policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely massive financial intervention from abroad has prevented what looked set to become a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately dropped a promise to make large tax reductions. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour aims this position will enable it to depict the populist as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result from the study, however, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.