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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to saving in the greenback.

“The best time to buy is currently,” states one arbolito, refusing to provide her identity. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the election is over. President Javier Milei has imposed a cap on the peso to tame triple-digit inflation and now it is artificially high and foreign reserves are exhausted, causing the national economy sluggish as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to wrestle back command of the economy from the establishment on behalf of the people.

These defining traits are shared by his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from international lenders for helping to control price rises in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

But investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple corruption scandals. Only massive economic support from abroad has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed concerns about economic detail with a bullish determination to enact the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies in writing aside from a call for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of being accused of proposing reckless spending, he recently abandoned a pledge for large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will enable it to portray Farage as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled 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 explains. “There’s a tension there between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the researchers.

A further interesting result of the research, though, is that even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for a considerable time, versus shorter tenures for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people have already paid significant costs.