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“Exchange, exchange.” Under the scorching heat, scores of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency after the election concludes. President Javier Milei has imposed a cap on the peso to tame soaring inflation and currently it is overvalued and reserves are depleted, causing Argentina’s economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, such as the influential Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, vowing muscular measures to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for helping to control price rises in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately after a shaky result in provincial elections and a series of graft allegations. Solely massive financial intervention by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away 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 in writing except for proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the Bank of England, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem unsettled: concerned about facing criticism for planning reckless spending, he recently dropped a pledge for large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict Farage as planning to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research suggests neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often 10% lower in countries run by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” argue the researchers.

Another intriguing finding from the study, though, is despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, the Argentine people are already bearing significant costs.