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“Exchange, exchange.” Under the blazing sun, scores of currency traders are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a nation long used to holding the greenback.

“The optimal moment to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a devaluation of the national currency after the election is over. President Javier Milei has imposed a limit on the peso to control soaring inflation and currently it is artificially high and reserves are depleted, causing the national economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to wrestle back control of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his ally to the north, and by Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to bring inflation under control. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.

However financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the central bank, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of proposing reckless spending, he recently dropped a promise for significant tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will allow it to portray Farage as planning to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of boosting public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there between rich backers who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader promises distinct solutions).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often a tenth less in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

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

A further interesting result of the research, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

Put simply, it remains uncertain that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing a heavy price.