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“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso once the election concludes. The president has placed a cap on the peso to tame soaring price increases and now it is artificially high and reserves are exhausted, leaving the national economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has frequently been hit by sovereign defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to reclaim control of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for helping to control inflation in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in Milei’s radical project lately after a poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention from abroad has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

Farage has so far committed few policies to paper except for proposals for mass deportations, which he subsequently appeared to revise on the hoof. He aims to curb the Bank of England, possibly replacing its head, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of facing criticism for proposing reckless spending, he recently abandoned a promise to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this position will allow it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers who want radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader promises distinct solutions).

Recent research from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, versus four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, 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 back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid significant costs.