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“Dollars, dollars.” Beneath the blazing sun, scores of money changers are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a country accustomed to saving in the greenback.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts from all backgrounds expect a depreciation of the national currency once the voting concludes. President Javier Milei has placed a cap on the currency to control soaring price increases and now it remains overvalued and reserves are exhausted, leaving the national economy sluggish as consumers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronism, and now the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular measures to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

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 even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for helping to bring price rises in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda lately after a poor performance in provincial elections and a series of corruption scandals. Only massive economic support by the US has averted what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: wary of being accused of planning reckless spending, he recently abandoned a promise for large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this stance will enable it to portray Farage as intending to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by very wealthy people calling for tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict here between wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, 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 from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head tends to be 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

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

Another intriguing finding of the research, though, is even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, versus four for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, the Argentine people are already bearing significant costs.