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“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a country long used to holding the greenback.

“The optimal moment for purchasing is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

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

Ideal Conditions

Argentina 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 influential Peronism, and now the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising muscular measures to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to control price rises under control. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be slain, regardless of the consequences.

However investors started to doubt in the government’s agenda lately following a shaky result in provincial elections and a series of graft allegations. Solely large-scale economic support by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained 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.

Farage has so far outlined limited plans in writing aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He aims to curb the central bank, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: wary of facing criticism for proposing reckless spending, he recently abandoned a pledge to make significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

Labour aims this position will enable it to portray the populist as intending to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in nations governed by populist leaders than in comparable countries under conventional leadership.

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

Another intriguing finding of the research, however, is despite their economic costs, these leaders are often effective at retaining office, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing a heavy price.