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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a country accustomed to holding the US dollar.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the election is over. The president has placed a cap on the peso to control soaring price increases and now it remains overvalued and reserves are exhausted, causing Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing muscular policies to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits are shared by his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring inflation under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a shaky result in local polls and a series of corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to enact the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of being accused of planning reckless spending, he recently dropped a promise for large tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be a tenth less in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, populist figures tend to be good at retaining office, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.