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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is now,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum anticipate a devaluation of the national currency after the voting concludes. President Javier Milei has placed a cap on the currency to control triple-digit price increases and now it remains artificially high and reserves are exhausted, causing Argentina’s economy stagnant as consumers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: captivating, unconventional, vowing forceful policies to reclaim command of economic management from traditional elites for the benefit of the people.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to control price rises in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

However investors began losing confidence in Milei’s radical project lately following a shaky result in local polls and a series of graft allegations. Only large-scale economic support from abroad has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

Farage to date outlined limited plans in writing aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently dropped a pledge for large tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition aims this position will enable it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor says there are contradictions within the populist platform, such as it is. “Reform are bankrolled 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 there between rich backers who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, 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 attraction extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.