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“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are hawking US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a country accustomed to saving in the greenback.

“The best time 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 from all backgrounds anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the peso to tame triple-digit inflation and now it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronism, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, promising forceful measures to wrestle back control of economic management from the establishment on behalf of the people.

These defining traits are shared by his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to control inflation in check. This plan has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately after a shaky result in provincial elections and a series of graft allegations. Only massive financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

Farage has so far committed few policies in writing except for proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: wary of being accused of proposing reckless spending, he recently abandoned a promise to make significant tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this position will allow it to depict Farage as intending to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there among rich backers seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting real-world challenges (although each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, gross domestic product per head is often a tenth less in countries governed by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” contend the researchers.

Another intriguing finding from the study, though, is despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

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