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“Cambio, cambio.” Beneath the blazing sun, scores of money changers are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is now,” says one arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum expect a devaluation of the national currency once the voting concludes. The president has placed a cap on the currency to control triple-digit price increases and now it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, such as the powerful Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising muscular policies to wrestle back control of economic management from the establishment on behalf of ordinary citizens.

These defining traits are shared by his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to control inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely massive financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to implement public demand despite elite opposition.

The Reform leader to date committed few policies in writing except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for proposing reckless spending, he recently abandoned a promise for large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her approach of boosting government spending.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among wealthy supporters seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result from the study, though, is even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.