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“Cambio, cambio.” Under the scorching heat, scores of money changers are hawking American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation long used to saving in the US dollar.

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

Like her, economists across the spectrum expect a depreciation of the Argentine peso once the voting concludes. The president has placed a limit on the peso to control triple-digit price increases and now it is artificially high and reserves are exhausted, causing the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has frequently been 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 Milei’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing muscular measures to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, as well as the UK politician, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to bring price rises under control. This plan has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

But investors began losing confidence in Milei’s radical project in recent months after a poor performance in local polls and a series of graft allegations. Only large-scale financial intervention from abroad has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve to implement the “will of the people” despite elite opposition.

Farage to date committed few policies to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her approach of increasing government spending.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (though of course every populist leader promises distinct solutions).

Recent research in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in nations run by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, compared with four for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.