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“Exchange, exchange.” Under the blazing sun, dozens of money changers are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the national currency after the election is over. President Javier Milei has imposed a cap on the peso to tame soaring price increases and now it is artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, vowing muscular measures to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to control inflation in check. This plan has something in common with that of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

But investors started to doubt in the government’s agenda in recent months following a poor performance in local polls and a series of corruption scandals. Only massive economic support from abroad has averted what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

Farage has so far outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: concerned about facing criticism for proposing reckless spending, he recently abandoned a promise for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there between rich backers who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, gross domestic product per head is often 10% lower in nations run by populist leaders than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” argue the researchers.

Another intriguing finding of the research, though, is despite their economic costs, populist figures tend to be good at holding on to power, lasting on average a considerable time, 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. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.