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“Exchange, exchange.” Under the blazing sun, scores of money changers are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a country accustomed to holding the US dollar.

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

Like her, economists across the spectrum expect a devaluation of the national currency once the election is over. The president has placed a cap on the currency to control soaring inflation and currently it is artificially high and foreign reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina 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, such as the influential Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, no matter the cost.

However investors began losing confidence in the government’s agenda in recent months following a poor performance in provincial elections and a series of corruption scandals. Only large-scale economic support by the US has averted what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper except for proposals for mass deportations, which he subsequently appeared to revise spontaneously. He wants to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he lately dropped a pledge for significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour aims this stance will allow it to depict Farage as intending to bring back austerity – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing public investment.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here between rich backers seeking Thatcherism on steroids, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer something unique).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often 10% lower in countries governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” argue the researchers.

A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, versus four for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.