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“Cambio, cambio.” Under the scorching heat, dozens of money changers are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a country accustomed to saving in the greenback.

“The optimal moment to buy is currently,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has imposed a cap on the currency to control soaring price increases and now it is overvalued and reserves are exhausted, causing the national economy stagnant as buyers opt for cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and currently Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular policies to reclaim command of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring inflation under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately following a poor performance in local polls and multiple corruption scandals. Only large-scale economic support by the US has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite the establishment’s horror.

Farage to date committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for proposing reckless spending, he recently abandoned a promise for large tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

Labour hopes this stance will enable it to portray the populist as intending to reintroduce austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people demanding lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research indicates neither left nor right populists often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer something unique).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations run by populist rulers compared to comparable countries with more mainstream regimes.

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

A further interesting result 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, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.