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“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are hawking American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation long used to holding the greenback.

“The optimal moment to buy is now,” states one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso after the voting is over. President Javier Milei has placed a cap on the currency to control soaring inflation and currently it is artificially high and reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now the president’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to wrestle back control of economic management from traditional elites on behalf of ordinary citizens.

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

Until recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for contributing to control inflation under control. The programme shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months following a shaky result in local polls and multiple graft allegations. Only massive financial intervention by the US has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the Bank of England, possibly replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately abandoned a pledge for large tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

Labour hopes this position will allow it to depict Farage as intending to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual promises something unique).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, GDP per capita is often 10% lower in nations run by populist rulers than in comparable countries with more mainstream regimes.

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

A further interesting result of the research, though, is even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, versus four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid a heavy price.