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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are offering American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation long used to holding the greenback.

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

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the election concludes. President Javier Milei has imposed a limit on the currency to control soaring inflation and currently it is artificially high and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had won plaudits from international lenders for helping to control price rises under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

However investors started to doubt in the government’s agenda in recent months after a poor performance in local polls and multiple graft allegations. Solely massive financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning reckless spending, he recently dropped a pledge to make large tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this position will enable it to depict Farage as planning to bring back austerity – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head is often a tenth less in nations run by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the researchers.

A further interesting result of the research, however, is that even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, the Argentine people have already paid a heavy price.