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“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation accustomed to holding the US dollar.

“The best time to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the currency to control triple-digit price increases and currently it remains overvalued and reserves are depleted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina 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 powerful Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to wrestle back control of the economy from the establishment on behalf of the people.

These defining traits are also seen in 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 public school-educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and deep budget reductions – had earned praise from the IMF for helping to bring inflation in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, no matter the cost.

But investors began losing confidence in the government’s agenda lately after a shaky result in local polls and multiple graft allegations. Solely large-scale economic support by the US has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he lately dropped a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

The opposition aims this position will enable it to portray Farage as intending to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her approach of increasing public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often 10% lower in countries run by populist leaders than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result of the research, however, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

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

But back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people are already bearing significant costs.