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“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to saving in the greenback.

“The optimal moment to buy is now,” states one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum expect a depreciation of the Argentine peso after the election concludes. The president has placed a cap on the peso to control soaring inflation and now it is overvalued and reserves are exhausted, causing Argentina’s economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been receptive over the years to leftwing populism, such as the influential Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to wrestle back control of economic management from the establishment for the benefit of the people.

These defining traits are shared by his ally in the United States, as well as the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to control price rises under control. This plan has something in common with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However investors started to doubt in the government’s agenda lately following a shaky result in provincial elections and multiple corruption scandals. Solely large-scale financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, dismissed doubts 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 outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise on the hoof. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately dropped a pledge to make large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

Labour aims this position will enable it to depict the populist as planning to reintroduce austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension there between rich backers seeking radical free-market policies, and this story of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (though of course each charismatic individual promises 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 that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries run by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the researchers.

Another intriguing finding of the research, however, is despite their economic costs, populist figures tend to be good at holding on to power, 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 immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.