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“Cambio, cambio.” Under the scorching heat, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the national currency after the voting concludes. President Javier Milei has placed a limit on the currency to tame soaring price increases and currently it remains artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, such as the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, unconventional, promising forceful policies to wrestle back command of economic management from traditional elites on behalf of the people.

These defining traits are shared by his ally in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to control price rises in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately following a shaky result in local polls and multiple graft allegations. Only large-scale financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed concerns about economic detail with confident resolve to enact public demand in the face of elite opposition.

Farage to date committed few policies in writing except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem in flux: concerned about being accused of planning reckless spending, he recently abandoned a promise for large tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray Farage as planning to bring back fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for lower taxes and deregulation, but also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there between wealthy supporters who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer 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 run by populist rulers compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, though, is despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction reaches beyond everyday financial matters.

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