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“Cambio, cambio.” Beneath the blazing sun, scores of currency traders are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is currently,” says a arbolito, refusing to provide her name. “[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 election is over. The president has imposed a cap on the peso to tame triple-digit inflation and currently it is overvalued and reserves are depleted, leaving the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, such as the powerful Peronism, and currently the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to bring inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

However financial markets started to doubt in the government’s agenda lately following a shaky result in provincial elections and multiple corruption scandals. Solely massive financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact public demand despite elite opposition.

Farage has so far outlined limited plans in writing aside from a call for large-scale removals, that he later appeared to revise spontaneously. He aims to curb the central bank, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for proposing reckless spending, he recently dropped a promise for significant tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to portray the populist as intending to bring back austerity – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here 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, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at retaining office, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction 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 have already paid a heavy price.