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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country long used to saving in the US dollar.

“The best time to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has imposed a cap on the currency to control triple-digit inflation and now it remains overvalued and foreign reserves are exhausted, causing the national economy sluggish as buyers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing forceful policies to wrestle back control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation under control. This plan has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely large-scale economic support from abroad has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date committed few policies to paper except for a call for mass deportations, that he later seemed to adjust on the hoof. He wants to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this stance will allow it to depict Farage as intending to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in nations governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, though, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.