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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a country long used to holding the US dollar.

“The optimal moment for purchasing is now,” says a arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a limit on the peso to control soaring price increases and now it is overvalued and reserves are depleted, causing the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular policies to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, and by Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in provincial elections and a series of corruption scandals. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact public demand despite elite opposition.

Farage has so far committed few policies in writing aside from proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: concerned about facing criticism for proposing reckless spending, he recently dropped a promise to make significant tax reductions. His Reform party deputy, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there between wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist rulers compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” argue the researchers.

Another intriguing finding from the study, however, is despite their economic costs, these leaders are often effective at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

Put simply, 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 attraction extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.