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“Exchange, exchange.” Beneath the blazing sun, scores of money changers are offering US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the Argentine peso after the voting is over. President Javier Milei has imposed a cap on the currency to tame triple-digit inflation and now it is overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and now the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing muscular measures to wrestle back command of the economy from the establishment for the benefit of the people.

These defining traits are shared by his ally to the north, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to control inflation under control. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months after a poor performance in local polls and multiple corruption scandals. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with confident resolve to enact the “will of the people” in the face of the establishment’s horror.

Farage to date committed few policies in writing except for a call for large-scale removals, that he later seemed to adjust on the hoof. He wants to curb the central bank, possibly replacing its head, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition hopes this stance will enable it to depict Farage as planning to reintroduce austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of increasing public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict there between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests populists of any stripe tend to fare well when faced with practical difficulties (although each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” argue the researchers.

A further interesting result of the research, however, is that even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.