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“Exchange, exchange.” Under the scorching heat, scores of money changers are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 congressional elections in a country accustomed to holding the greenback.

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

Like her, economic experts across the spectrum expect a devaluation of the Argentine peso once the election concludes. President Javier Milei has imposed a limit on the currency to control soaring inflation and now it remains overvalued and foreign reserves are depleted, leaving Argentina’s economy sluggish as buyers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, such as the influential Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing muscular policies to wrestle back control of economic management from the establishment on behalf of the people.

These defining traits are also seen in his political partner in the United States, as well as the UK politician, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation under control. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately after a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” despite elite opposition.

Farage has so far outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition hopes this position will allow it to depict Farage as intending to bring back austerity – a point the chancellor has emphasized often, contrasting it with her approach of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests populists of any stripe often perform poorly when confronting real-world challenges (although 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. It found that on average, over the long term, GDP per capita tends to be 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, the Argentine people have already paid a heavy price.