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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are offering US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The best time to buy is now,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a devaluation of the national currency after the election is over. The president has placed a cap on the currency to control triple-digit price increases and currently it remains overvalued and reserves are depleted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful measures to wrestle back control of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are also seen in his ally in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to bring inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be slain, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far outlined limited plans to paper aside from proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to curb the central bank, possibly replacing its head, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for proposing reckless spending, he lately dropped a pledge for large tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour aims this position will enable it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, research indicates populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader claims to offer distinct solutions).

Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, GDP per capita is often 10% lower in nations governed by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders 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 whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.