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“Cambio, cambio.” Beneath the blazing sun, dozens of money changers are selling American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a nation long used to saving in the greenback.

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

Like her, economic experts across the spectrum anticipate a devaluation of the national currency once the voting concludes. President Javier Milei has imposed a limit on the peso to tame triple-digit inflation and currently it is overvalued and foreign reserves are depleted, causing Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

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

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of the economy from the establishment for the benefit of the people.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for helping to control inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months following a shaky result in local polls and multiple corruption scandals. Only massive economic support from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies in writing aside from proposals for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem in flux: concerned about facing criticism for planning reckless spending, he lately abandoned a pledge for significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for tax cuts and deregulation, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there between wealthy supporters who want Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be a tenth less in nations run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.