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“Cambio, cambio.” Under the scorching heat, dozens of money changers are selling US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a country accustomed to holding the greenback.

“The best time to buy is now,” says a arbolito, declining to give 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 Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to tame triple-digit price increases and now it is artificially high and foreign reserves are exhausted, causing Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: captivating, unconventional, vowing forceful policies to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits are also seen in his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to bring price rises under control. This plan shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months after a shaky result in provincial elections and a series of corruption scandals. Solely massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to enact public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make large 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 allow it to portray the populist as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there among wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader claims to offer something unique).

Recent research 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, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand under populist governments,” contend the researchers.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.