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“Exchange, exchange.” Under the scorching heat, scores of currency traders are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a country accustomed to holding the US dollar.

“The best time to buy is now,” states one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the election is over. The president has imposed a cap on the peso to tame soaring price increases and now it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to reclaim control of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had earned praise from international lenders for helping to control price rises under control. This plan 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.

But investors started to doubt in the government’s agenda lately after a poor performance in local polls and a series of graft allegations. Solely massive financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans in writing aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of planning reckless spending, he lately dropped a promise to make significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict Farage as intending to bring back austerity – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, research suggests neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises 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 typically, over the long term, gross domestic product per head tends to be 10% lower in countries governed by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand with populist rule,” argue the researchers.

A further interesting result of the research, though, is even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.