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“Exchange, exchange.” Under the blazing sun, dozens of currency traders are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country long used to saving in the US dollar.

“The best time to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso once the voting is over. President Javier Milei has imposed a cap on the currency to tame soaring price increases and now it is overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country 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 Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular measures to reclaim control of economic management from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to bring inflation in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in the government’s agenda lately after a poor performance in local polls and a series of corruption scandals. Only large-scale economic support from abroad has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts about economic detail with confident resolve to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in 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 tax and spending policies seem in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge for large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to portray Farage as intending to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of increasing government spending.

Jo Michell says there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that despite their economic costs, populist figures are often effective at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing a heavy price.