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“Cambio, cambio.” Under the blazing sun, scores of money changers are selling American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation long used to holding the greenback.

“The optimal moment for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the peso to tame soaring price increases and currently it is artificially high and foreign reserves are depleted, leaving the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has frequently been racked by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the powerful Peronism, and now Milei’s rightwing version.

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

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to bring price rises under control. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in Milei’s radical project in recent months following a shaky result in provincial elections and a series of corruption scandals. Only large-scale economic support from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

Farage has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a promise to make large tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will allow it to portray the populist as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here among rich backers who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

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

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries run by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” contend the researchers.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.