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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are selling US dollars 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 congressional elections in a nation long used to holding the US dollar.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to control soaring price increases and now it remains overvalued and reserves are depleted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the powerful Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, vowing forceful policies to reclaim command of economic management from traditional elites for the benefit of the people.

These defining traits are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from international lenders for contributing to bring price rises in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However investors began losing confidence in the government’s agenda in recent months after a poor performance in local polls and multiple graft allegations. Solely massive financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve to enact public demand in the face of elite opposition.

Farage has so far committed few policies to paper aside from proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: concerned about being accused of proposing reckless spending, he lately dropped a pledge to make large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this stance will enable it to depict the populist as intending to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people calling for tax cuts and deregulation, but also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There’s a tension here between rich backers who want radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, however, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people have already paid significant costs.