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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country long used to holding the US dollar.

“The optimal moment to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso after the election is over. President Javier Milei has imposed a limit on the currency to tame triple-digit inflation and currently it remains overvalued and reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been receptive for decades to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, vowing muscular policies to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as the UK politician, 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 severe budget reductions – had earned praise from international lenders for contributing to bring inflation under control. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months following a shaky result in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies in writing except for proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge to make significant tax reductions. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as intending to reintroduce austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he explains. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often a tenth less in countries run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the researchers.

A further interesting result from the study, however, is even with their negative impacts, these leaders are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.