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“Exchange, exchange.” Under the scorching heat, scores of money changers are offering American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a country long used to saving in the US dollar.

“The optimal moment to buy is currently,” states one arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum expect a devaluation of the Argentine peso once the voting is over. The president has imposed a cap on the peso to tame soaring inflation and now it remains overvalued and reserves are exhausted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful measures to wrestle back command of economic management from traditional elites on behalf of the people.

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

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to control inflation under control. The programme shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

But financial markets started to doubt in the government’s agenda lately after a poor performance in local polls and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

The Reform leader to date outlined limited plans to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for planning reckless spending, he recently dropped a promise for significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour hopes this position will enable it to depict Farage as intending to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by affluent backers calling for tax cuts and deregulation, yet also talking a lot about the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension there between wealthy supporters who want radical free-market policies, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

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

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be 10% lower in nations run by populist rulers than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the researchers.

A further interesting result from the study, however, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for a considerable time, versus shorter tenures for mainstream politicians.

Put simply, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.