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“Exchange, exchange.” Under the blazing sun, scores of money changers are offering US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to saving in the greenback.

“The optimal moment to buy is now,” states a arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency once the election concludes. President Javier Milei has imposed a cap on the currency to tame triple-digit inflation and now it remains overvalued and reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to reclaim control of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his political partner to the north, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for helping to control price rises in check. This plan shares similarities with the policies of his political hero the former UK prime minister, who also saw inflation as a monster to be slain, no matter the cost.

But investors began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of corruption scandals. Solely massive economic support by the US has prevented what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about being accused of proposing reckless spending, he lately abandoned a promise for large tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict the populist as planning to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with 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 affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual promises something unique).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita tends to be 10% lower in countries run by populist rulers than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” contend the paper’s authors.

Another intriguing finding from the study, however, is that despite their economic costs, populist figures are often effective at retaining office, remaining in power for a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.