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“Cambio, cambio.” Beneath the blazing sun, dozens of money changers are offering US dollars along Florida Street, a bustling pedestrian strip 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 holding the US dollar.

“The best time to buy is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency after the voting concludes. The president has imposed a cap on the peso to tame soaring inflation and currently it remains artificially high and reserves are exhausted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and now the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, promising muscular measures to wrestle back control of economic management from the establishment on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from international lenders for contributing to bring price rises under control. The programme shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a shaky result in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies in writing except for proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: wary of facing criticism for planning reckless spending, he recently abandoned a pledge for significant tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

The opposition aims this stance will allow it to portray Farage as intending to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict here between wealthy supporters who want radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (although each charismatic individual promises something unique).

A recent paper from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

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

A further interesting result of the research, though, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

Yet returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.