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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to holding the US dollar.

“The optimal moment to buy is currently,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a cap on the peso to tame soaring price increases and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by debt defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronism, and now the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful measures to wrestle back control of the economy from the establishment for the benefit of the people.

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

Until recent months, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from international lenders for contributing to bring inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

But investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple graft allegations. Solely massive financial intervention from abroad has prevented what looked set to become a major currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror.

The Reform leader to date outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour aims this stance will allow it to portray the populist as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when faced with real-world challenges (although each charismatic individual promises distinct solutions).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist rulers compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the paper’s authors.

A further interesting result from the study, however, is even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens have already paid significant costs.