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“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a country accustomed to holding the greenback.

“The best time for purchasing is now,” says one arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

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

Fertile Ground

The nation is a very special case. Argentina has frequently been racked by debt defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing muscular measures to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

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

However investors started to doubt in Milei’s radical project lately following a poor performance in local polls and a series of corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far committed few policies to paper except for proposals for mass deportations, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will enable it to portray Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting real-world challenges (although each charismatic individual promises something unique).

A recent paper from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist rulers than in similar economies with more mainstream regimes.

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

A further interesting result of the research, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.