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“Exchange, exchange.” Under the scorching heat, dozens of currency traders are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The optimal moment to buy is currently,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the national currency once the election is over. The president has placed a limit on the currency to tame triple-digit inflation and now it is artificially high and reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, such as the influential Peronism, and now Milei’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

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

Up until lately, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had earned praise from the IMF for contributing to bring price rises in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Only large-scale economic support from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently dropped a promise to make large tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her approach of increasing government spending.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, over more than a century. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” contend the researchers.

A further interesting result of the research, however, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.