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“Exchange, exchange.” Under the scorching heat, scores of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the Argentine peso once the election concludes. President Javier Milei has placed a limit on the peso to control triple-digit inflation and currently it is artificially high and foreign reserves are depleted, leaving the national economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. Argentina has frequently been hit by sovereign defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, vowing muscular policies to wrestle back command of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to control inflation under control. This plan has something in common with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, regardless of the consequences.

However investors started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple graft allegations. Solely large-scale economic support by the US has averted what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for mass deportations, that he later seemed to adjust on the hoof. He wants to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about being accused of planning reckless spending, he lately dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to portray Farage as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by very wealthy people demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates populists of any stripe tend to fare well when confronting real-world challenges (although each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review examined 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 governed by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, versus four for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.