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“Exchange, exchange.” Under the blazing sun, dozens of currency traders are offering US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country long used to holding the US dollar.

“The best time to buy is now,” states one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a cap on the currency to tame soaring inflation and now it remains overvalued and foreign reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by debt defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing muscular measures to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring price rises under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda lately after a shaky result in provincial elections and multiple graft allegations. Solely massive financial intervention from abroad has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

Farage to date committed few policies in writing except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of being accused of proposing reckless spending, he recently dropped a promise for significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, yet also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict here between wealthy supporters who want radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual promises something unique).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be a tenth less in countries governed by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.