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“Dollars, dollars.” Under the blazing sun, dozens of money changers are offering American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to saving in the greenback.

“The best time to buy is now,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency once the voting is over. President Javier Milei has imposed a cap on the peso to control triple-digit inflation and now it remains overvalued and reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, such as the influential Peronism, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising forceful 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, and by the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme has something in common with that of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and multiple graft allegations. Only large-scale economic support by the US has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve to enact public demand despite the establishment’s horror.

The Reform leader to date committed few policies to paper except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax cuts. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict Farage as planning to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he says. “There’s a tension here among rich backers who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual promises distinct solutions).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita is often 10% lower in countries governed by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.