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“Exchange, exchange.” Under the blazing sun, scores of money changers are hawking American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the greenback.

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

Like her, economists across the spectrum expect a devaluation of the Argentine peso once the voting concludes. The president has imposed a cap on the peso to control triple-digit inflation and now it is overvalued and reserves are depleted, leaving Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and now the president’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, promising forceful measures to reclaim control of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for helping to control price rises in check. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months after a shaky result in provincial elections and multiple graft allegations. Solely massive economic support from abroad has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to enact the “will of the people” despite elite opposition.

Farage to date committed few policies in writing aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of planning reckless spending, he recently dropped a promise for large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to depict the populist as intending to bring back fiscal tightening – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there among wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper in the American Economic Review 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 nations governed by populist rulers than in comparable countries under conventional leadership.

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

Another intriguing finding of the research, though, is that even with their negative impacts, 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 is not clear that even when their plans crash, 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 Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.