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“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the voting is over. The president has imposed a limit on the currency to control soaring price increases and currently it remains artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the influential Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular measures to reclaim control of the economy from the establishment on behalf of the people.

These defining traits are shared by his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to bring price rises in check. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, no matter the cost.

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

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His fiscal plans seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise to make large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims 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 strategy of increasing government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding tax cuts and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he explains. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions 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, versus four for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.