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“Exchange, exchange.” Under the blazing sun, dozens of currency traders are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment for purchasing is now,” says one arbolito, declining to give her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economic experts across the spectrum anticipate a depreciation of the national currency after the voting concludes. The president has placed a limit on the peso to control triple-digit price increases and now it remains overvalued and reserves are depleted, leaving Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing muscular policies to wrestle back command of the economy from the establishment for the benefit of the people.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for contributing to control inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately following a poor performance in provincial elections and multiple corruption scandals. Solely massive economic support by the US has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror.

Farage has so far committed few policies in writing except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will allow it to depict the populist as planning to reintroduce fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people calling for tax cuts and deregulation, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict here among rich backers who want radical free-market policies, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer something unique).

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, after 15 years, gross domestic product per head tends to be a tenth less in countries governed by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

But back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.