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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a country accustomed to holding the greenback.

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

Like her, economists across the spectrum expect a devaluation of the national currency once the election concludes. The president has imposed a cap on the peso to tame triple-digit inflation and currently it is artificially high and reserves are exhausted, causing the national economy sluggish as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, vowing forceful policies to wrestle back command of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from international lenders for contributing to control price rises in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of graft allegations. Only massive economic support from abroad has averted what looked set to become a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to implement the “will of the people” despite the establishment’s horror.

Farage has so far committed few policies to paper except for proposals for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita is often 10% lower in nations run by populist rulers compared to comparable countries with more mainstream regimes.

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

A further interesting result from the study, though, is despite their economic costs, populist figures tend to be good at retaining office, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid significant costs.