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“Cambio, cambio.” Under the blazing sun, scores of money changers are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country accustomed to holding the US dollar.

“The optimal moment for purchasing is currently,” says a arbolito, refusing to provide her name. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the election concludes. President Javier Milei has imposed a limit on the currency to tame triple-digit inflation and now it is artificially high and reserves are depleted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, promising forceful policies to wrestle back command of economic management from traditional elites on behalf of the people.

These defining traits are also seen in 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 former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from the IMF for contributing to control inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of corruption scandals. Solely massive financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite elite opposition.

Farage has so far committed few policies in writing aside from a call for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the central bank, possibly replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: concerned about being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting public investment.

Jo Michell notes there are contradictions within the populist platform, such as it is. “The party are bankrolled by very wealthy people demanding lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here between rich backers who want radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist leaders than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, however, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for eight years, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.