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“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a nation accustomed to holding the US dollar.

“The best time to buy is now,” states one 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 expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a cap on the currency to control triple-digit inflation and currently it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, unconventional, promising forceful policies to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda 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.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be in flux: concerned about facing criticism for proposing reckless spending, he recently abandoned a pledge for large tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour hopes this position will allow it to portray the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding from the study, however, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.