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“Cambio, cambio.” Beneath the blazing sun, dozens of money changers are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is now,” states one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a cap on the currency to control triple-digit price increases and now it remains overvalued and foreign reserves are exhausted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been hit by debt defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, such as the influential Peronism, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had earned praise from international lenders for helping to control inflation in check. This plan has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of graft allegations. Only large-scale financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies to paper except for proposals for mass deportations, which he subsequently appeared to revise on the hoof. He aims to rein in the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for planning reckless spending, he lately dropped a promise for large tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will allow it to portray Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies 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 grievances of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although every populist leader promises distinct solutions).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, though, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past 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 are already bearing a heavy price.