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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are offering American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little 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 currently,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency once the election is over. The president has placed a cap on the peso to control soaring inflation and now it is overvalued and reserves are exhausted, causing Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronism, and currently Milei’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing forceful policies to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep public spending cuts – had won plaudits from international lenders for contributing to control inflation under control. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But investors started to doubt in the government’s agenda lately after a shaky result in local polls and multiple corruption scandals. Solely massive economic support by the US has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

The Reform leader to date committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately dropped a promise for large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of boosting public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for tax cuts and deregulation, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There’s a tension there among rich backers seeking radical free-market policies, and this story of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader 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. It found that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” argue the researchers.

Another intriguing finding of the research, though, is despite their economic costs, populist figures tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.