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“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The best time to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists across the spectrum anticipate a devaluation of the national currency once the election is over. President Javier Milei has placed a limit on the currency to tame soaring price increases and now it is artificially high and reserves are depleted, leaving Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, promising forceful policies to wrestle back control of economic management from traditional elites for the benefit of ordinary citizens.

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

Until recent months, the president’s strategy – including extensive privatisations and severe budget reductions – had earned praise from the IMF for contributing to control inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Only large-scale financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from a call for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he explains. “There is a conflict there between rich backers seeking radical free-market policies, and this story of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often a tenth less in countries run by populist rulers compared to similar economies under conventional leadership.

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

Another intriguing finding from the study, however, is even with their negative impacts, populist figures are often effective at retaining office, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.