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“Cambio, cambio.” Under the blazing sun, scores of currency traders are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country accustomed to holding the US dollar.

“The best time to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum expect a devaluation of the national currency once the voting is over. President Javier Milei has imposed a cap on the peso to control soaring inflation and currently it remains artificially high and reserves are exhausted, causing the national economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been hit by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular policies to wrestle back control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to control inflation under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

However investors began losing confidence in the government’s agenda in recent months following a shaky result in provincial elections and multiple graft allegations. Only massive economic support from abroad has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans in writing except for a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for planning reckless spending, he lately dropped a pledge for large tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will enable it to depict the populist as planning to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, yet also talking a lot about the grievances of working people and the loss of industrial jobs,” he explains. “There’s a tension here among wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates populists of any stripe tend to fare well when faced with real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in nations governed by populist leaders than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it is not clear that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.