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“Dollars, dollars.” Under the scorching heat, dozens of money changers are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a country long used to saving in the US dollar.

“The best time to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso once the election concludes. President Javier Milei has imposed a cap on the currency to tame soaring inflation and currently it remains artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, vowing muscular policies to reclaim command of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner in the United States, and by the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had won plaudits from international lenders for contributing to control inflation in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

However investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and a series of graft allegations. Solely large-scale financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to implement the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies to paper aside from proposals for mass deportations, that he later appeared to revise spontaneously. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: wary of being accused of proposing a Liz Truss-style splurge, he lately dropped a promise for significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

Labour aims this position will allow it to portray Farage as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, but also emphasizing the grievances of working people and the decline of industrial jobs,” he explains. “There is a conflict there between rich backers who want radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates populists of any stripe often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in countries run by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

Put simply, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.

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