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“Cambio, cambio.” Beneath the blazing sun, scores of money changers are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a nation long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the peso to tame triple-digit price increases and now it remains artificially high and reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. Argentina has frequently been hit by debt defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, such as the influential Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to wrestle back command of economic management from traditional elites on behalf of the people.

These defining traits are also seen in his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from the IMF for helping to bring inflation in check. The programme has something in common with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

However investors started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of graft allegations. Only massive economic support by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he lately dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as intending to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for lower taxes and reduced rules, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he explains. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when confronting practical difficulties (although each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” argue the researchers.

A further interesting result from the study, however, is that even with their negative impacts, these leaders are often effective at retaining office, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

But back in Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people are already bearing significant costs.